On June 9, a historic moment occurred.
El Salvador voted by an “overwhelming majority” to officially pass a bill making bitcoin legal tender in the country, making it the first country in history to officially make bitcoin legal tender.
The bill, released by President Nayib Bukele, shows that the bill aims to make bitcoin an unrestricted legal tender with emancipatory powers that can be traded freely in the future.
The document states that the exchange rate of bitcoin against the U.S. dollar will be determined by the market. Bitcoin can be used for payments and can be used to pay taxes, and bitcoin exchanges will not have to pay capital gains taxes, as do fiat exchanges. No goods or service provider will be allowed to refuse to accept bitcoin. People would be able to exchange freely between bitcoins and dollars. The state will provide the necessary training and mechanisms to lower the threshold for people to trade bitcoin.
Buerkle revealed that El Salvador will grant permanent residency to immigrants who invest 3 bitcoins. At the same time, the government will introduce a bitcoin wallet for citizens and run a trust holding $150 million in bitcoin to offset bitcoin volatility, thus ensuring that merchants don’t have to take the risk.
What kind of country is El Salvador, and why did it choose to be the first country to eat bitcoin and pass the bill so quickly?
The Magical El Salvador
It’s not news when a dog bites a man, it’s news when a man bites a dog.
In El Salvador, it’s not news when there’s a murder, it’s news when there’s no murder.
On a Wednesday in January 2017, Salvadoran police were excited to say that the country had gone 24 hours without a murder, which is rare in El Salvador.
According to the United Nations, El Salvador has one of the highest homicide rates in the world.
A coastal country located in northern Central America, El Salvador has a population of about 6.7 million as of 2019, a GDP of $26.75 billion and a relatively weak industrial and agricultural economic base.
As a cash-dollar-based economy, about 70% of the people in El Salvador do not have bank accounts or credit cards.
Like most backward Central American countries, El Salvador’s economy relies heavily on remittances from migrants, who send more than 20 percent of El Salvador’s GDP back to their home countries.
According to previous media reports, more than 2 million Salvadorans live abroad and regularly send remittances to their families, sending more than $4 billion in remittances annually.
However, transferring money is also a luxury in El Salvador, with international transfers often charging fees of 10% or more and taking days to arrive in some cases.
In this context, Bitcoin offers Salvadorans a way to send money back home more easily and avoid high service fees. For low-income groups without bank accounts, a wallet is sufficient, more convenient, and less costly.
Bitcoin is no longer just a mere speculative object, but has become a low-cost financial infrastructure that is integrated into the lives of Salvadoran residents.
However, bitcoin transfers are extremely inefficient, with a TPS (number of transactions processed per second) of only 7. How can this be used for everyday payment needs?
The Lightning Network is a second layer payment protocol for the Bitcoin network that allows for faster transactions.
The main idea of the Lightning Network is to put a large number of transactions outside of the Bitcoin blockchain. The Lightning Network improves the off-chain transaction channel through smart contracts. Smart contracts play an important role as intermediaries throughout the transaction, while the blockchain ensures that the final transaction result is confirmed.
Strike, on the other hand, is a Venmo-style payment app from Jack Maller that uses the Lightning Network to settle U.S. dollars or other fiat currencies.
This comes after Salvadoran President Nayib Bukele announced a partnership between El Salvador and digital currency wallet company Strike to build the country’s modern financial infrastructure using Bitcoin technology.
As a result, Lightning Network and Strike have also emerged as the winners behind the scenes.
Buerkle, Trump Jr.
With so many countries lagging behind in financial infrastructure, why did El Salvador become the first to take the plunge and pass the bill quickly and smoothly?
All the external factors are just icing on the cake, there is only one real reason: Bitcoin enthusiast, Salvadoran President Naib Buerkle, is willing to do so.
Naib Buerkle is a man of his word and a man of his word, and it was only natural that he had the armed forces break into parliament before to get Congress to approve the loan and make Bitcoin legal tender.
He is a self-proclaimed “most fashionable and handsome president on the planet”, who often speaks out of turn and likes to “tweet his way to power”.
Yes, the man, Mr. Trump. Buerkle is a die-hard fan of Trump, having strongly recommended Trump’s hydroxychloroquine therapy during the new crown epidemic. Trump, however, has recently gone on record calling Bitcoin a scam.
Born into a family of Salvadoran advertising magnates in 1981, Buerkle grew up with social ideals and joined the Farabundo Martí National Liberation Front, a former left-wing guerrilla party, only to be expelled from the party for being too overtly political in his ambitions. Since then, Bucher has been disillusioned with traditional political parties, has broken with them completely, and is eager for change.
In 2015, he was elected mayor of San Salvador, and in 2017, he set up his own party, New Ideas.
In 2019, Buerkle challenged the presidential election, becoming the first president in the history of El Salvador who was not from one of the two main political parties.
In terms of style, Bucher and Trump are similar, with South America knowing the king and appointing himself as “God of the Messiah” and “savior of the people”.
During Trump’s administration, Buerkle was a hardcore fan, and even the venue of his presidential speech was shifted from the country to the Heritage Foundation, a far-right conservative think tank, and the Trump administration maintained a good relationship.
However, with Trump’s ouster, everything has changed.
After Biden took power, Buerkle still wanted to have a good relationship with the U.S. government. In February this year, Booker made a special trip to Washington for a visit, but met with closed doors and failed to meet with any members of the administration.
In the eyes of the Biden administration, Buerkle is a BAD BOY.
Last year, Booker sent armed forces to break into the National Assembly to seek its approval for a loan; the Salvadoran Court of Accounts noted in a report that large sums of money from the government’s distribution of New Crown Pneumonia grants went to tens of thousands of unknown accounts ……
Biden’s senior adviser for Latin American affairs, Juan Gonzalez, made a direct statement of disagreement with the Buerkle administration, admitting that El Salvador would risk slipping into the authoritarian model of countries like Honduras and Guatemala.
On June 3, El Salvador’s Congress passed legislation that changed the way two members of the central bank’s seven-member board are nominated, stripping El Salvador’s private sector lobby of the power it previously had to nominate members of the central bank’s board, and President Buerkle expanded the grounds for firing members of the central bank’s board.
In 2020, El Salvador was hit by a double whammy of a new crown epidemic and a hurricane disaster, with the economy shrinking by as much as 9 percent, 1.9 million people falling into poverty, the poverty rate climbing to 30 percent and public debt surging to 90 percent of GDP.
At the same time, the approval rating of Angela Bucher went up, once reaching a historical peak.
Populism will be held high, but once fallen, will be a million abyss, Bukele had to do everything possible to please the people, whether with the mob, or grant Bitcoin legal tender status, to attract crypto big brother investment, perhaps the original intention is to make this fragile country become a little better.
No Change in the Status of the Dollar
After El Salvador officially passes the bill to make bitcoin legal tender, will everyone use bitcoin for their daily transactions? Wouldn’t that cause prices to fluctuate dramatically due to fluctuations in value?
Don’t worry about that. Even though it was abandoned by the Biden administration, El Salvador is still the primary currency of the U.S. dollar, and bitcoin is more of an alternate item or symbol.
On January 1, 2001, the government of El Salvador, led by then President Flores, began a policy of dollarization through a so-called currency consolidation law, using the U.S. dollar as the unit of accounting and opening up transactions in strong currencies such as the euro and the Japanese yen.
Although the currency consolidation law allowed the simultaneous use of the “colones” and fixed the exchange rate with the U.S. dollar at 8.75 colones to the U.S. dollar, in practice the country’s major banks were told to keep the colones and remove the country’s colones from circulation.
The then government of El Salvador claimed that dollarization had produced many benefits, such as having avoided the devaluation of the currency and reduced interest rates on bank loans.
However, problems arose as El Salvador became a “dependent country” of the United States, with “American traces” on the streets: American fast food restaurants such as McDonald’s and Pizza Hut were everywhere, ice cream brands were named “Boston The “American trace” is all over the streets: McDonald’s, Pizza Hut and other American fast food restaurants are everywhere, ice cream brands are named “Boston”, and places selling affordable clothing made in China are called “American Club”.
The local central bank does not have an independent monetary policy for macro-control, everything depends on the face of the Federal Reserve.
Since then, the lack of independent monetary policy and the dollarization of the economy have gradually resulted in high debt and soaring costs of living in El Salvador, relying mainly on foreign exchange remitted home by expatriates to support the economy.
In the aftermath of the epidemic, the Federal Reserve released a huge amount of money and skyrocketed over-issuance of dollars, while El Salvador had to passively bear everything.
Today, although it has also become legal tender, Bitcoin has not been able to challenge the dollar’s dominance in El Salvador.
El Salvador has no intention of de-dollarizing through Bitcoin, which can only exist in relation to the U.S. dollar, according to Miguel Kattan, El Salvador’s minister of commerce and industry.
President Naib Buerkle has also said that bitcoin will not replace the U.S. dollar.
Like all countries in Catholic Central and South America, El Salvador’s ultimate dilemma is that it is “too far from God and too close to the United States.”
The U.S. and the U.S. dollar, the paradise to which they aspire, are also the hell that will destroy their country.
El Salvador (El Salvador) means, in Spanish, the savior.
Whether Bitcoin will be the savior of El Salvador or Satan, time will tell.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/behind-bitcoin-as-legal-tender-in-el-salvador-us-outcast-still-a-slave-to-the-dollar/
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