Why El Salvador introduced Bitcoin

Why El Salvador introduced Bitcoin


On September 8, 2021, El Salvador surprised the financial world by becoming the first country to accept Bitcoin as legal tender. This could be the first sign of a financial revolution, as Panama could do the same in the coming years. Many other countries such as the US, China and the UK are also looking to adopt cryptocurrencies in other forms.


However, the question on everyone’s mind is why countries like El Salvador are adopting Bitcoin as a legal tender and what exactly this means for the crypto community and the country?


Bitcoin is known to be the most powerful cryptocurrency out there and the heart of the crypto world. Analysts have predicted that Bitcoin will continue to rise high and prove to be a very profitable investment in the future. El Salvador’s President, Nayib Bukele, wants to take advantage of this opportunity to improve El Salvador’s foreign exchange market, as the money transactions sent into the country by people from other states account for one-fifth of the country’s GDP

However, these citizens are heavily burdened by the high fees charged for these transactions, especially since 70 percent of El Salvador’s citizens do not have bank accounts. The government wants to solve this problem with Bitcoin transactions, as it is a quick and easy way to make payments, the cost of making these transactions is not too high, and no banks are required.


In addition to this development, the government has topped up each citizen’s Bitcoin wallet with $30 worth of Bitcoin. Thanks to this Marshal Plan-like rollout, El Salvador citizens can now use Bitcoin to conduct everyday transactions within the country. Among them, purchases and tax payments. Businesses in El Salvador have no choice but to accept this form of payment, as Bitcoin is legal tender.


The impact of this decision
For some, this is a welcome development in the country, but many others believe that it simply won’t work. One of the reasons for this is that Bitcoin is an unpredictable and volatile coin that has traded between $21,000 and $46,000 this year alone. This move had also affected the markets, for example, the Financial Times had reported that the yield of El Salvador bonds had increased by an average of 3.5 percent before the announcement of Bitcoin as legal tender. For El Salvador, this means that businesses and investors are beginning to lose confidence in the government’s finances.


Some businesses in El Salvador are not welcoming this development due to the high volatility of the coin. If they get paid in Bitcoin during the bullish period, there is no telling where the price will be when they want to exchange those coins for goods or buy new shares.


This update on El Salvador could be good news for the crypto community as it means Bitcoin is becoming more valuable and therefore experiencing a potential price increase in the long run, nevertheless it is not expected that many countries will also accept Bitcoin as legal tender anytime soon. This is because high volatility is not a very desirable characteristic of a legal tender, and that is exactly the case with Bitcoin at the moment.

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