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Current Affairs

El Salvador decides to use Bitcoin as legal tender

Date: 09 June 2021 Tags: Miscellaneous

Issue

Bitcoin cryptocurrency is set to be made a legal tender in Central American country of El Salvador, the President has announced.

 

Background

The President of the country believes in adopting technological alternatives to existing features. The legislation is most likely to go through without opposition.

 

Details

  • The decision of adopting Bitcoin as legal tender will make El Salvador the first country in the world to adopt a virtual currency officially.

  • El Salvador at present does not have its own monetary policy. The US dollar is its official currency and the country is highly dependent on US policy measures.

  • Along with Ecuador and Panama, El Salvador is one of the three countries that have an economy that is dollarized.

 

Implications

The new measure will allow people outside the formal economy to become financially included. It will also generate employment in the country.

 

Need for adopting Bitcoin

  • El Salvador depends majorly on remittances sent by its citizens living in US and other countries. The remittances make about 20 percent of its GDP.

  • The issue however is that majority of the amount is lost to intermediaries as commissions or transfer charges. Bitcoin would allow hindrance-free transfer to El Salvador.

  • Increase in amount received would have a trickle-down effect on the informal economy as more than 70 percent of people do not have a bank account.

 

Reactions to the announcement

  • It is expected that Bitcoin would gain back its popularity through this measure. The market for cryptocurrency would increase further.

  • Many countries such as Venezuela, Cuba and Mexico are contemplating at implementing token currencies to overcome US sanctions and regulations.