Bitcoin prices moved higher on Wednesday after El Salvador's legislature resoundingly backed plans by its president Nayib Bukele to make the cryptocurrency legal tender in the Central American nation.
In a vote early on Wednesday, the Legislative Assembly of El Salvador, which is dominated by Bukele’s Nuevas Ideas party, backed the proposal by a supermajority vote with 62 members in support and 19 opposed with three abstentions. The Assembly’s backing means the bill is now expected to be signed into law by the president by Thursday morning.
The law means El Salvador will become the first country in the world to recognise a digital currency as legal tender, a move that has been hailed by some in the sector as a milestone for Bitcoin’s acceptance as a viable currency.
Businesses will be required to accept Bitcoin as payment for goods and services under the new law, with the government acting as a backstop for merchants unwilling to take on the volatility risk by setting up a trust that will instantly convert Bitcoin to US dollars.
While the immediate benefits of adopting Bitcoin as legal tender are currently unclear, the move may provide a boost to the 70% of El Salvador’s citizens who do not have a bank account or access to financial services, as well as potentially reducing the reliance of the country’s economy on US dollars and other fiat currencies issued by central banks around the world, many of whom have increased inflationary pressures by printing large amounts of cash during the coronavirus pandemic.
Bukele also said in a Twitter Space conversation on Wednesday morning that plans are being drawn up to grant permanent residency in El Salvador to any individual who invests three Bitcoin into the nation’s economy, a twist on other ‘Golden Visa’ arrangements that exist in other countries to lure in investment.
El Salvador’s move also runs in direct contrast to the attitude of many established central banks such as the US Federal Reserve and the Bank of England, who instead are focusing on the potential benefits of Central Bank Digital Currencies (CBDCs) in a bid to create a centralised, state-backed alternative to existing cryptos.
In mid-morning trading in London, Bitcoin was up 3.7% at US$34,192, giving it a market cap of US$637bn.