On June 9th, the bitcoin law passed in El Salvador following approval from 62 of 84 Salvadoran Congress members. Since 70% of the population doesn’t have a bank account, bitcoin will help include this population in financial services, according to Salvadoran President Nayib Bukele.
In addition, 20% of El Salvador’s GDP relies on money sent to it from abroad. The two million Salvadorans that live abroad still keep ties with El Salvador, where they collectively send more than $4 million per year to their loved ones. This means that the introduction of bitcoin alongside the dollar could have a significant impact on the Salvadoran economy.
90 days after the law passed, bitcoin will become a legal currency. So, what does this mean for bitcoin and other cryptocurrencies, what could it mean for the Salvadoran economy, and will other countries follow suit? To answer these questions, we must first understand the situation in El Salvador.
Post-approval
El Salvador is the first nation in the world to adopt bitcoin as a legal currency. Once it becomes legal 90 days after the approval, Salvadorans will be able to make payments with the cryptocurrency, and all “economic agents” will be required to adopt bitcoin, unless they don’t have the technology to support its use.
According to President Bukele, this move will help create job opportunities, facilitate payment processes, and bring “financial inclusion” in El Salvador. However, not everyone shares his passion and love for bitcoin. His vision was met with negativity by Carlos Carcach, a professor at the Superior School of Economics and Business in El Salvador, who says bitcoin is highly “volatile”- meaning a person is at risk of either becoming rich or poor within just one day.
It is still early to determine how the country will perform economically. Therefore, analysts will be watching El Salvador’s bitcoin experiment closely to see how it will affect the Salvadoran economy. That being said, this decision has already affected bitcoin. So, how did this decision affect bitcoin, and what does it mean for other crypto?
Bitcoin and other crypto
The day after the approval, bitcoin’s value skyrocketed to over $37,000, a 6% jump from the previous value. XRP and Ethereum, two other crypto, also witnessed a jump after the decision. Major crypto supporters like Twitter CEO Jack Dorsey said that “bitcoin will eventually be the single global currency.” Like many crypto proponents, Dorsey is a bitcoin investor. Crypto proponents therefore welcomed El Salvador’s move.
Since crypto is a volatile currency, such surges and reactions are normal. El Salvador has opened the door for other nations to join in, and if more nations follow El Salvador’s steps, bitcoin and other crypto will witness major changes again. However, will we see other nations follow suit?
Will other countries follow suit?
In response to El Salvador’s “historical” move, many South American politicians commended El Salvador’s decision via Twitter. Paraguayan congressman Carlos Rejala said that the “moment has come” to keep up with new technologies to move forward. In addition, he mentioned how he had been advocating such a move for Paraguay for a “long time”. Rejala first became a cryptocurrency trader in 2019 after having begun crypto observations in 2017.
In Panama, National Assembly deputy Gabriel Silva stated that his country cannot be “left behind”, saying that in order to be up to date with technology, the country must also support cryptocurrency. After reposting a tweet by Bukele, Silva had announced that he had plans of drafting a proposal to be presented to his colleagues at parliament.
Tanzania is the latest example of a country that isn’t South American that could adopt crypto as a legitimate form of currency. In a call to Tanzanian Central Bank made on June 13th, President Samia Suluhu Hassan urged them to start facilitating the widespread use of crypto in Tanzania. After the news became known, bitcoin gained and added value of about 10%.
A final note
Although legalising bitcoin in El Salvador can bring financial inclusion and improve the country’s economy, many analysts consider the move to be risky because of crypto’s volatile nature. Nevertheless, the move was also endorsed and welcomed by many crypto proponents and politicians from nations worldwide.
There are predictions of other nations joining El Salvador in legalising crypto, so we can expect future surges in crypto value.
For now, we can’t predict how legalising bitcoin will affect El Salvador since the law won’t be put in effect for some time. So, we will observe bitcoin’s effects on the Salvadoran economy once El Salvador starts using it.
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