El Salvador’s decision to use Bitcoin as legal tender

  • Category
    Economy
  • Published
    14th Jun, 2021

El Salvador is declaring the Bitcoin cryptocurrency as a legal tender in the Central American country.

Context

El Salvador is declaring the Bitcoin cryptocurrency as a legal tender in the Central American country.

  • If that happens, El Salvador would become the first country in the world to formally adopt the virtual currency.

About

About the adoption of Bitcoinby El Salvador

  • It depends heavily on remittances sent by Salvadorians from abroad.
  • Around a quarter of the country’s citizens live in the US, and in 2020 they sent home more than $6 billion in remittances i.e. more than 20% of the GDP.
  • A big chunk of those 6 billion dollars is lost to intermediaries. By using Bitcoin, the amount received by more than a million low income families will increase in the equivalent of billions of dollars every year.
  • Also, Bitcoin will help increase financial inclusion in El Salvador, where 70% of the population does not have a bank account and relies on the informal economy.

Attitude of governments towards cryptocurrencies

  • Governments around the world are now looking to launch their own virtual tokens, called central bank digital currencies (CBDCs).
  • US has taken a decisive step towards issuing its own CBDC.
  • In India too, the government has floated The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.
  • It will prohibit all private cryptocurrencies and lay down the regulatory framework for the launch of an “official digital currency”.

About CBDC

  • A central bank digital currency (CBDC) utilizes technology to represent a country's official currency in digital form.
  • Unlike decentralized cryptocurrency projects like Bitcoin, a CBDC would be centralized and regulated by a country's monetary authority.
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