El Salvador looks to become first country to adopt Bitcoin as legal tender

A banner that reads "We accept Bitcoin, free, fast and without contagion" at a cafe on Punta Roca Beach in El Salvador.
A banner that reads "We accept Bitcoin, free, fast and without contagion" at a cafe on Punta Roca Beach in El Salvador.PHOTO: REUTERS

SAN SALVADOR (BLOOMBERG) - El Salvador’s Nayib Bukele, Latin America’s youngest president who is known to break from the norms, said he plans to send legislation that would make Bitcoin legal tender in the country, alongside the United States dollar.

“In the short term, this will generate jobs and help provide financial inclusion to thousands outside the formal economy,” the 39-year-old leader said in a video broadcast at the Bitcoin 2021 conference in Miami on Saturday (June 5). He said he would submit to the legislature a Bill this week.

El Salvador is a largely cash economy, where 70 per cent of the population does not have a bank account. Money sent home by migrants, account for more than 20 per cent of its gross domestic product. 

Incumbent services can charge 10 per cent or more in fees for those international transfers, which can sometimes take days to arrive and that sometimes require a physical pickup, CNN reported.

In a series of tweets, Mr Bukele said Bitcoin could help boost the economy. El Salvador’s low banking penetration rate could also improve with the use of Bitcoin, he said, adding that it would facilitate faster transfers for US$6 billion (S$7.95 billion) of remittances a year.

“Financial inclusion is not only a moral imperative, but also a way to grow the country’s economy, providing access to credit, savings, investment and secure transactions,” he said. “We hope that this decision will be just the beginning in providing a space where some of the leading innovators can reimagine the future of finance.”

Bitcoin, meanwhile, continued its decline on Saturday after the potentially positive catalyst from El Salvador was unable to assuage investor concerns over Chinese regulatory risks.

The world’s largest digital coin slipped to trade around US$35,220 as of 6.31pm in New York, down 5.3 per cent in the past 24 hours. The move extends its downtrend for a second day after a cryptic tweet from  Tesla founder and crypto advocate Elon Musk that hinted at a potential split with the token.

Weibo, a Chinese social media service, appears to have blocked some crypto influencer accounts on Saturday, citing violation of unspecified laws and Weibo community rules. While Weibo has cracked down on various crytocurrency-related accounts in the past years, the news came on top of recent harsh Chinese regulatory rhetoric that have already led to a plunge in prices for many digital coins.

Payments platform Strike founder and chief executive Jack Mallers presented Mr Bukele’s video during the meeting on Saturday, saying this will go down as the “shot heard ’round the world for Bitcoin”. He said the El Salvadoran government has asked him to help develop a plan for the use of Bitcoin. 

“What’s transformative here is that Bitcoin is both the greatest reserve asset ever created and a superior monetary network. Holding Bitcoin provides a way to protect developing economies from potential shocks of fiat currency inflation,” he said.

El Salvador’s bonds tumbled last month after Mr Bukele’s party used the supermajority it won in February congressional elections to fire five top judges and the Attorney-General, drawing condemnation for what critics saw as a blatant power grab.

The move also fuelled concern that the US will urge the International Monetary Fund to closely review a much-needed loan for El Salvador, potentially upending government finances.

Mr Bukele is among the region’s most popular leaders, according to public opinion polls that show him with an approval rating of more than 85 per cent. He has a strong social media following and charted an unconventional route to politics, working at his father’s marketing agency before serving terms as mayor of San Salvador and a suburb. He ran for president in 2018 pledging to curb corruption and rampant gang-fuelled crime, and became the first president in almost 30 years to win without the support of one of the major parties.