The first country to make Bitcoin legal tender? Do you know why?

El Salvador may be the first, but it will never be the last.

The first country to make Bitcoin legal tender? Do you know why?

Last weekend, El Salvador caused a stir in the final hours of the Bitcoin 2021 conference in Miami. El Salvador’s president, Buechler, announced that he would submit a bill to the country’s Congress that would recognize bitcoin as legal tender, in which President Buechler’s party has an absolute majority in El Salvador’s Congress, making it highly unlikely that any of the president’s legislative proposals will be passed.

If El Salvador passes this bill, it would mean that bitcoin becomes legal tender in the country, and the important thing about becoming legal tender is that the country would allow debt to be contracted in bitcoin and settled in bitcoin, allowing banks to use bitcoin for transactions, deposits, and loans using the cryptocurrency.

Background of El Salvador
El Salvador is a coastal country located in the northern part of Central America and is the most densely populated country in Central America, in the 2019 census the country has a total population of 6,705,000, the main source of the country’s economy is based on agriculture, El Salvador can be considered a developing country in the traditional sense.

As early as 2000, El Salvador’s national currency collapsed under the country’s hyperinflation, and in order to save the domestic economy, El Salvador then declared the U.S. dollar as its legal tender, and then El Salvador began to phase out its own currency, which has been dominated by the U.S. dollar ever since.

El Salvador’s president has publicly stated, “I hope to do with Bitcoin what El Salvador did with the dollar in 2001.” It’s clear that Bukler wants to replace the dollar’s dominance in El Salvador with bitcoin in the same way, saying that since El Salvador has already abolished its own currency in favor of the dollar system, there’s nothing to lose by allowing people to freely choose between two legally equivalent alternative currencies now.

El Salvador’s main reason for doing so is a desire to weaken the dollar’s dominance in its national economy as late May rolls around in San Salvador, El Salvador (AP) – The U.S. Agency for International Development will shift its funding from state institutions in El Salvador to civil society groups as tensions rise between the two governments over the removal of judges and prosecutors from El Salvador’s Supreme Court.

Once the United States chooses to impose economic sanctions on El Salvador, which has an economic system dominated by the U.S. dollar, it will not have the slightest ability to resist.

El Salvador’s statement did generate a lot of international buzz, and many bitcoin believers cheered, but the announcement did not immediately send the price of bitcoin skyrocketing, merely leveling out the drop in bitcoin over the past 24 hours, which was contained to about 4%.

El Salvador’s Difficulties
As a developing country, El Salvador has only 30% of the population with bank accounts, and the country’s remittance business also accounts for 21% of the country’s GDP, which means that remittances in the country’s legal tender have become incredibly expensive, while the fast and cheap nature of bitcoin has made it the ideal currency for El Salvador.

This is where the problem often lies. In a cash-based economy, where 70% of the country’s population is unbanked and most of the country’s population has no exposure to bitcoin or even knows what it is, would the nationals accept bitcoin if they knew it was so volatile and not at all as stable as the US dollar? Would the people of El Salvador switch from a traditional economy to a speculative economy if they found out that bitcoin’s price fluctuations could bring them great wealth when they paid with bitcoin?

I doubt most people can afford the fees for bitcoin transfers, but of course the situation in El Salvador is bad enough that using bitcoin is not a problem, because the country’s own remittance business already takes up about half of its GDP, so there is no way out without a shift.

But if Bitcoin is used, it is a top priority for El Salvador to spread financial literacy, and Bitcoin is a much tougher technology to overcome. The good news is that El Salvador is not a brainiac, and in March of this year, El Salvador launched a mobile payment app that quickly became the country’s most downloaded app, while El Salvador has formed a Bitcoin leadership team to help build a new financial ecosystem with Bitcoin as the base layer.

But we all know how difficult this can be, but in the end this new policy is a major boon for many Salvadorans, especially those without unbanked populations, and regardless of the implementation technology, Bitcoin is one of the options for most developing countries, and with El Salvador having taken this step, more and more developing countries will choose this path in the future as they all try to avoid the sanctions of the dollar system for a country’s economy.

El Salvador may be the first, but it will never be the last.

Posted by:CoinYuppie,Reprinted with attribution to:
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