On Wednesday, June 9, El Salvador made history by becoming the first country to authorize the use of bitcoin as legal tender. President Nayib Bukele’s proposal to utilize the currency was widely popular in Congress. The votes came to 62 out of 84 in favor of instating a law to adopt bitcoin as the country’s legal tender. The introduction of bitcoin will greatly help the facilitation of remittances sent back home from Salvadorians living abroad. This is important as one in four Salvadorians live abroad. In addition, more than $2 out of every $10 in the country’s economy comes from remittances. Therefore, incorporating bitcoin as legal tender should only improve access to financial resources throughout El Salvador’s marginalized communities. Shortly before the bill was passed, President Bukele tweeted about the economic benefits of having bitcoin as legal tender: “It will bring financial inclusion, investment, tourism, innovation and economic development for our country.”
The Benefits of Bitcoin
The authorization of bitcoin as legal tender may be a developing trend across emerging economies. This is because bank penetration and access to traditional financial institutions are remarkably low. In El Salvador, more than 70% of the population lacks any connection to traditional financial services. It is due to these circumstances that Salvadorians have found themselves so reliant on remittances. In the past year alone, remittances contributed a fifth of El Salvador’s total GDP. With the domestic economy so dependent on remittances, it is clear why Bukele would craft a bill intended to ease the process for sending money back home from abroad.
Through cryptocurrency, Salvadorians will be able to send money to impoverished loved ones at a much affordable and quicker rate. No longer will those working in the global north have to rely on remittance firms. Rather, converting local currencies to and from bitcoin requires only an informal broker.
President Bukele will use significant domestic resources to help train the Salvadorian population to carry out bitcoin transactions. El Salvador’s commitment to cryptocurrency will not only forecast the future relevancy of cryptocurrency but act as a case study for other emerging economies that may be interested in eventually adopting bitcoin as legal tender. “The market will now be focused on adoption through El Salvador and whether other nations follow,” said Richard Galvin of crypto fund Digital Asset Capital Management. “This could be a key catalyst for bitcoin over the next two to three years.”
In the past, people have criticized bitcoin mining for its harmful environmental footprint. However, El Salvador has made a concerted effort to ensure its bitcoin operation uses complete renewable energy. President Bukele has repeatedly stated that El Salvador’s state-run geothermal energy mechanisms will convert power derived from volcanoes for bitcoin mining. Scorching steam generates the power that can spin turbines and generate electricity. Going forward, bitcoin holds enormous potential in driving renewable energy projects across the world, especially in emerging economies.
– Conor Green