10th June: El Salvador became the world’s first country to adopt bitcoin as legal cash on Wednesday.
Following a bill that legitimized cryptocurrencies as currency, President Nayib Bukele stated that the Central American nation will legally recognize it. According to the law, 70% of El Salvador’s population lacks access to traditional financial services, therefore the decision to accept bitcoin aims to increase financial inclusion. El Salvador’s national currency is currently the US dollar. It’s still unclear when bitcoin will be accepted as legal tender or how it will be implemented. Following Bukele’s revelation, the value of bitcoin jumped by 5% on Wednesday. Because of its volatility, many countries, including the United States, have expressed concern toward cryptocurrencies.
El Salvador’s law establishes bitcoin on equal standing with the dollar, which has been the country’s official currency for the past 20 years. Making bitcoin “legal tender” means that stores and businesses must accept it as payment for products and services, and they can choose to express prices in it. Bitcoin can also be used to pay taxes, albeit this will be optional. Bitcoin’s value has fluctuated dramatically over the course of its 12-year existence, with daily double-digit price swings making it unfeasible for commerce. Despite the fact that an increasing number of big companies accept it as payment, it is still rarely utilized to buy products and services around the world.
Although Bitcoin was created as a currency, many investors regard it as a gold-like asset rather than a replacement for dollars, euros, or yen. The status of cryptocurrencies and how they should be controlled are being debated by financial regulators and law enforcement agencies around the world. The jury is still out on whether bitcoin will become more of a transaction instrument or take on the role of a currency in its own right after its debut in El Salvador.
Analysts will be able to assess the effects of bitcoin on an economy for the first time thanks to El Salvador’s trial. Some fear that the rising use of cryptocurrency would erode monetary policy’s effectiveness. While El Salvador already uses the dollar as its legal cash, other emerging economies on the verge of dollarization may discover that cryptocurrency use exacerbates this, limiting central banks’ ability to act as lender of last resort.
Bitcoin, like many other cryptocurrencies, has a finite supply in order to prevent inflation. However, experts believe that as the economic rationale for cryptocurrencies grows, so will the development of new ones, implying that overall supply is not limited and could lead to inflation.
Image Courtesy: warriortradingnews.com
Leave a Reply