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El Salvador is witnessing quite a busy time this month. It became the first country in history to make the largest cryptocurrency, Bitcoin, a legal tender on 7th September 2021. Expatriate advocates in the real world say it will cut commission costs of billions of dollars sent home from outside, but critics warned that it can spur money laundering.
The plan launched by young and charismatic President Nayib Bukele aims to save Salvadorans 400 million dollars each year on payment commissions, mostly shipped from the U.S.
The news was welcomed gladly by the citizens as it came as a big financial relief for the population. Even today, 70% of the country’s population remains unbanked. The implementation is in full swing as the government has already been installing ATMs of its Chivo Digital wallet that will allow the exchange of cryptocurrency and dollars. It would also let you withdraw without commission.
So What Is the Plan?
The Government has spent $203 million on public funding for support for its Bitcoin plan, which says more people will have access to banking services and millions will shave off commission charges for essential transfers from abroad. Of this amount, $150 million is to ensure that Bitcoin is convertible to dollars and finance rollouts of $23.3 million. The $30-million bonus for new users was set aside another $30 million.
The government got the plan set by buying its first 400 bitcoins on the first Monday of the month, followed by another 150 on Tuesday, for a total value of $26 million.
"Like all innovations, El Salvador's bitcoin process has a learning curve. Every road to the future is like this and not everything will be achieved in a day, or a month," Bukele said on Twitter while speaking about the plans for the big adaptation.
Companies will have to accept Bitcoin in return for goods and services. Also, the government accepts it for tax payments. The plan is the personal invention of the 40-year-old President of El Salvador, who says it will attract more people and make it cheaper to send money.
For purposes of public accounting, the dollar will remain the national currency, and traders who are technologically unable to get e-currency are exempt from the law, according to the government. The dollarized economy of El Salvador depends largely on remittances sent by immigrants from abroad, which last year totals $6 billion and is approximately one-fifth of the gross domestic product.
There are now more than half a million people using El Salvador's bitcoin wallet, Nayib Bukele announced this week. This is not surprising as the country needed a financial system like this.
Why El Salvador Needed This?
As stated earlier, 70% of the country’s population remains unbanked and so far the country did not have a currency of its own. It was dependent on the US Dollar. As a result, the U.S. government had a lot of control over the country’s finances. El Salvador is one of the poorest countries in Latin America. As a result, the El Salvadoran government was almost at mercy of the U.S. government. They kept an eye on the number of dollars flowing in and out of El Salvador. Therefore, BTC makes sense.
Bitcoin acceptance has already started on a good note in the country. Before the big news was announced, 75% of the politicians from the country voted in favor of it. On September 7th, 2021, when the Bitcoin Law in El Salvador came into effect, the day came to be known as the “Bitcoin Day.” Like anywhere else, the pandemic helped in the adaptation of Bitcoin. The government also announced Bitcoin Airdrops to help families in El Salvador during the pandemic. And this added to the acceptance and popularity of Bitcoin in the country.
Bancoagricola, El Salvador's largest financial institution, was one of the first to include support for Bitcoin's financial instruments. This means that customers are able, in line with Bitcoin's law, to pay for the financing instruments (such as loans, mortgages, and credit card debts). Bank clients using a digital payment gateway known as Wompi can also receive payments via this service in bitcoin. Carlos Mauricio Novoa, COO of Bancoagricola, said:
“We are excited to be the first financial institution in El Salvador to enable bitcoin access for our customers across our entire suite of financial products and to enhance financial inclusion.”
Is This Just the Beginning of a Domino Effect?
If this law becomes a success, other countries may follow El Salvador’s lead. The term "mass adoption" is a popular subject in the cryptography field, probably since the creation of cryptocurrency. More countries are opening up to and benefiting from the idea of the emerging industry, creating improved regulation for cryptocurrencies and their functions as an asset and utility. Listed below are some of the major economies of the world that have made Bitcoin legal in their country.
Ukraine
Ukraine's President Volodymyr Zelensky recently met Silicon Valley IT industry specialists to pave the way for Bitcoin adoption sooner rather than later, as Bitcoin seems to give early adopters a great incentive and end constant inflation. The transition to a fully digital economy would certainly not take place overnight. Ukraine still relies on its fiat currency for a while, but the government is going to combine it with a strong Bitcoin treasury reserve with a comprehensive nuclear mine plan for Bitcoin.
Argentina
A ground for late crypto-monetary adoption in Argentina has proven unbelievable with a slew of bullishness which makes it a pioneer in mass crypto adoption. Back in 2019, through a partnership between Bitex—a financial services provider based in Blockchain — and Alto Viaje—a platform to top-up Argentine transport cards, citizens have been allowed to pay BTC for their journey. It allowed users of Argentina's Sistema Único De Boleto Electrónico (SUBE) public transport card through Bitex to supplement their BTC cards.
Brazil
A proposed rule, Bill 2140/21, which was presented in June in the Brazilian Chamber of Deputy, is now under discussion because it lays down a fixed time frame for regulating crypto-monetary transactions for a government branch. If adopted, a time limit of 180 days would be set for all the structures necessary to effectively regulate crypto-monetary transactions. Deputy Alexandre Frota of the Social Democracy Party of Brazil presented the project (PSDB).
In recent years, Brazil has been known for its crypto-related scams. The state has been quick to act to stop these schemes and has organized various operations in recent months to shut down and arrest people responsible for illegal activities related to cryptocurrency.