Nayib Bukele, president of El Salvador, announced that his country will legally recognize the use of bitcoin cryptocurrency.
If his plan wins congressional support, the Central American nation will be the first in the world to formally adopt digital currency.
Bitcoin could then be used for transactions together with the US dollar, which is the official currency of El Salvador.
Bukele understands that bitcoin will make it easier for Salvadorans living abroad to send money to friends and family back home.
“In the short term, this will create jobs and help provide financial inclusion for thousands of people outside the formal economy,” Bukele spoke at a bitcoin conference in Florida, USA.
The president believes that the measure can boost investment in the country.
He also said he would send the proposed legislation change to Congress next week.
If approved, the measure will open up financial services to 70% of Salvadorans who do not have a bank account, the president calculates.
El Salvador’s economy relies heavily on remittances sent from other parts of the world, which represent around 20% of the country’s GDP (Gross Domestic Product).
More than two million Salvadorans live abroad but continue to maintain close ties to their birthplace, sending back more than $4 billion (BRL 20 billion) each year.
Banking services currently available may charge fees for these transfers, which can take days to complete.
Often the money needs to be withdrawn in person, at the physical branches of financial institutions.
“It will improve the lives and futures of millions,” Bukele predicts.
The president did not elaborate on how the policy would work in practice.
Bitcoin, one of the best known and most used cryptocurrencies, has experienced large fluctuations in value over the past few years.
For now, most of the world’s central banks are studying the possibility of developing their own digital currencies.
In April, the Bank of England, for example, announced that it was considering creating a digital financial model that would exist alongside conventional cash and bank deposits.
A single bold step
Journalist Will Grant, BBC correspondent in Mexico and Central America, analyzes what Bukele’s ad might mean:
“The plan announced by President Nayib Bukele would make the small Central American nation the first in the world to officially adopt a digital currency, bitcoin.
It would be a unique and bold step, the first for a sovereign country, and this may be an attraction of Bukele’s government, a young leader who knows how to use social media and the media very well, is very popular and worries the United States with its increasingly autocratic trends.
There are still many questions about how digital money would become a legalized currency in the country. A major overhaul of the financial infrastructure in El Salvador would be needed with Bitcoin at its heart.
But, in essence, this seems to be what Bukele is proposing.
Much of El Salvador’s developing economy is based on remittances from abroad, and switching to a digital currency could allow family members to avoid the high fees charged for sending money home each month.
In any case, this is a move that will likely reinforce Bitcoin’s image as the ‘currency of the future’ and President Bukele’s position among his supporters as an innovator.”
Controversies and alternatives
Roger Ver of Bitcoin.com told the BBC that, in this Salvadoran proposal, other cryptocurrencies would do a much better job than Bitcoin.
“This is fantastic news for all cryptocurrencies in general, but what most of the world doesn’t realize is that Bitcoin no longer operates as a currency.”
“Other options like Bitcoin Cash, Monero or ZCash work much better as currencies.”
“Bitcoin can only process about three transactions per second. There’s no way a network that can handle just this volume of transactions can turn into cash for the entire world.”
Other cryptocurrencies would also be more advantageous for remittances from abroad, as they charge less than Bitcoin for that, compares Ver.