Bitcoin as Legal Tender – How a Developing Country’s Economy Stands to Benefit

Since June, the world has been holding its breath in anticipation of the first nation ever to officially launch Bitcoin as legal tender. All eyes turned to El Salvador as September 7^th quickly approached. Now, alongside the U.S. dollar, El Salvador has two accepted currencies for all types of purchases.

In preparation for the September debut of bitcoin, El Salvador established certain features to ensure a smooth transition.  One such feature stands out in particular: Chivo (named after the popular Spanish slang for “cool”). Where do you store your digital tokens?  Your digital wallet, logically.  This is exactly what Chivo is; created and issued as the official crypto wallet of the government and the public. How ‘cool’ is that?

As a currency, Bitcoin has already opened doors for El Salvador, but with a digital wallet designed by and for the country, more doors are appearing. Of course, other digital wallets can be used to make transactions, but Chivo is designed to offer benefits that other digital wallets may not provide. From a bonus of $30 USD, to the option to pay via dollars or bitcoin from your smartphone, and sending or collecting money without any fees – any hesitation can quickly turn to excitement. By enabling citizens to transact in bitcoin or dollars at any time of day without fees, the government further encourages the use of the digital currency.

The new bitcoin ATMs

200 Chivo ATMs were activated in tandem with the wallet, and according to the President of El Salvador himself, commission-free withdrawals and deposits can be made at these ATMs. Drawing remittances in cash without commissions is believed to allow the saving of $400 million in fees. Advisors will be on hand to provide guidance to those with limited knowledge to ensure they too can access this incredible service.

In addition to preparing the public for the Bitcoin transition, President Bukele also prepped the country’s economy by collaborating with organizations such as CABEI (Central American Bank for Economic Integration) and IMF (International Monetary Fund) for input and advice on the integration of Bitcoin as legal tender. The President’s plan also included a state-sanctioned trust for Bitcoin. Banco de Desarrollo de El Salvador (Bandesal) is the trust’s headquarters. It will allow businesses and individuals to exchange bitcoin into U.S. dollars at market prices, catering to those who do not want to hold the cryptocurrency.

The bitcoin buzz isn’t without its detractors and naysayers. El Salvador’s approach is innovative and risky, doing what no other country has done before. Naturally, there is a sense of hesitation and doubt about this new era of digital currency. However, proven and projected benefits tend to support this move for the country and its citizenry:

Easier to receive remittances

• Using bitcoin to send remittances (est. around $6 billion in 2019) may reduce transaction costs and fees by over 10%.

Digitized banking creates accessibility

• A digital economy would mean a greater accessibility to funds, which in turn, creates a greater accessibility to the market.  El Salvador is home to one of the largest cell phone densities in the world. There is a shocking 125 cell phones per 100 people!  With more than 70% of El Salvador’s adults without a traditional bank account, but with access to a cell phone, funds and online banking will be within easy reach.

Increasing business with the U.S.

• Democratizing access to electronic payments through bitcoin could significantly benefit the economy as a whole. By declaring bitcoin as legal tender, entrepreneurs and enthusiasts have a new avenue to pursue as they expand their investment portfolio. Adding incentives such as Permanent Residency and no Capital Gains taxes on bitcoin investments further encourages participation.

The Salvadoran government has been actively backing this digital currency since the decision was made in June. The main objective of the passed bill is to generate employment opportunities, promote true financial inclusion, and generate economic dynamism. The value of this currency answers exclusively to free-market criteria.

El Salvador is actively striving to ensure the success of Bitcoin, despite it not being a government-issued currency. Bitcoin, a currency that is “inflation-proof,” benefits both the public and the government because it consists of a defined finite number of units. This means the currency is a fixed amount, and no more bitcoins can ever be created. In other words: Immutable proof = Inflation proof.

The combination of an accessible currency and its flexible use, the opportunities for trade, GDP increase, and attainable profits for El Salvador’s economy drastically increase.  From buying your groceries to donating to the world’s largest online encyclopedia, Bitcoin is accepted by an extensive list of Fortune 500 companies which only bolsters incentive to trade. The country understands the potential and benefits of adopting Bitcoin as a legal tender. It recognizes its importance in improving the lives of its citizenry.

Economically, locally, and globally, the excitement has been palpable. El Salvador leapt off the precipice on September 7th, becoming the first nation in history to officially launch bitcoin as legal tender. Across the globe, countries, entrepreneurs and bitcoin enthusiasts are watching.