El Salvador Becomes the First Country to Make Bitcoin Legal Tender
El Salvador’s odd history of its currency just became more strange after passing a law that requires all companies to accept Bitcoin as legal currency.
El Salvador already is unusual in that it rejected its own currency, the colones, in 2001 after its economy was decimated by a 12-year civil war, according to Ars Technica.
In an effort to shore up its economy, it replaced colones with a surprising choice: the U.S. dollar.
While this provided the country with instant stability and stopped runaway inflation in its tracks, such a striking move took away a lot of freedom to create a standard monetary policy that most countries enjoy.
But a new currency chapter opened on Monday as the El Salvadorian Legislative Assembly passed a law directing all companies to accept Bitcoin for payment alongside the dollar.
However, Reuters reported that individuals are not required to use the electronic currency.
Potential Benefits
One beneficiary has clearly been Bitcoin itself, which saw its value soar in late afternoon trading. One Bitcoin is now worth over $36,000, up a whopping 10 percent.
But for El Salvador, it is less clear.
On Monday, President Nayib Bukele said of making Bitcoin a legal tender, “It is ambitious, but simple, it is also well structured so that it has zero risk for those who do not want to take risks.”
“The government will guarantee convertibility at the exact value in dollars at the time of each transaction,” he added.
“In turn, it will bring financial inclusion, investment, tourism, innovation and economic development for our country. Let no one tell us that we are too small to be big.”
“Bukele has touted the use of bitcoin for its potential to help Salvadorans living abroad to send remittances back home, while saying the U.S. dollar will also continue as legal tender,” Reuters reported.
Certainly, El Salvador has enjoyed the tremendous attention this unprecedented act has brought.
Problems with Bitcoin as a Legal Tender
As seen in the explosion of ransomware attacks, particularly the devastating Colonial Pipeline hack, the general public has learned that Bitcoin is particularly valued by criminals as it is relatively untraceable.
Normally, to move cash in excess of $10,000 in and out of a U.S. bank, the bank needs to complete a Currency Transaction Report, which makes money laundering difficult. But if bad actors can move millions of dollars worth of Bitcoins in and out of the legitimate financial system, the traditional money laundering safeguards are greatly lessened.
Now, in El Salvador, there’s no need to launder money. A criminal can simply buy a sports car or a house directly with Bitcoins, with investigators potentially having no way to determine the source of funds.
While Bukele may want this extraordinary move to turn on the taps to foreign investment, what he may actually be accomplishing is inviting criminals to expand their empires with the police powerless to do anything about it.
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