As of September the 7th, Bitcoin will be legal tender in the country of El Salvador. El Salvador will be the first country to completely open its doors to the use of Bitcoin and has already started to make moves to promote the move.
El Salvador is a developing country in Central America, bordered by Honduras and Guatemala. Compared to other developing countries, El Salvador has been experiencing fairly low rates of GDP growth. 22.8% of the population live below the poverty line and the average wage is significantly low.
The country’s decision to make Bitcoin a legal tender could be a bet to boost the economy and bring the country more in line with the economical status of other developing regions.
In efforts to promote the new currency, the government took steps to encourage citizens to purchase and use Bitcoin. The government offered $30 in free Bitcoins for anyone who signed up for the digital wallet ‘Chivo’. This is the nation’s largest digital world.
El Salvador is also offering citizenship to any foreigners who invest three Bitcoins in the country- three Bitcoins is currently worth around $140,000.
After making the announcement other countries, including neighbouring Central American nation Panama, have also voiced their interest in making crypto a legal tender.
What will this mean for El Salvador?
Legal tender refers to money that must be accepted if offered as payment. Legal tender traditionally takes the form of banknotes or coins however, like everything else, it must eventually catch up to the modern way of life and digitise.
El Salvador started using the US dollar as legal tender in 2001 and, while all merchants in the country will accept this form of legal tender, merchants and businesses do not have to accept alternative legal tenders as payment for a good or service.
The only time that all legal tenders must be accepted as forms of payment is when debts are owed to creditors. Businesses and merchants in El Salvador will have the ability to refuse Bitcoin payments, despite the currency’s legal tender status. This would be the same in any country that chooses to make cryptocurrency a legal tender.
How will Bitcoin help the economy?
The President of El Salvador hopes that making Bitcoin a legal tender in the country will encourage investors to spend more money in the nation. El Salvador is falling behind other developing countries and is making moves to improve its financial status.
The $30 that is given to every citizen who opens a digital wallet will temporarily stimulate the economy, providing a short term boost. While this short term boost may help the country to begin salvaging its economy, it is unclear whether the government can continue to use these types of incentives to improve circulation.
Making Bitcoin a legal tender is a bold move from El Salvador, that may attract the attention of wealthy investors and improve the economy. However, the moves that have already been put into place are expensive and may not be sustainable.
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