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El Salvador makes bitcoin legal tender

Discussion in 'Off-Topic' started by gangleri2001, Jun 10, 2021.

  1. gangleri2001

    gangleri2001 Garbage day!!!

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    In a world first, El Salvador makes bitcoin legal tender
    Nelson Renteria Tom Wilson Karin Strohecker
    5 minute read

    El Salvador became the first country in the world to adopt bitcoin as legal tender after Congress on Wednesday approved President Nayib Bukele’s proposal to embrace the cryptocurrency, a move that delighted the currency’s supporters.

    With 62 out of 84 possible votes, lawmakers voted in favor of the move to create a law to adopt bitcoin, despite concern about the potential impact on El Salvador's program with the International Monetary Fund.

    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. In practice, El Salvador does not have its own currency.

    "It will bring financial inclusion, investment, tourism, innovation and economic development for our country," Bukele said in a tweet shortly before the vote in Congress, which is controlled by his party and allies.

    In an idea he appeared to have developed overnight, Bukele later said he had instructed state-owned geothermal electric firm LaGeo to develop a plan to offer bitcoin mining facilities using renewable energy from the country's volcanoes. read more

    He said the idea was to build a bitcoin mining hub around the country's geothermal potential. He also said that El Salvador would offer citizenship to people who showed evidence they had invested in at least three bitcoins.

    The use of bitcoin will be optional for individuals and would not bring risks to users, Bukele said, with the government guaranteeing convertibility to dollars at the time of transaction through a $150 million trust created at the country's development bank BANDESAL.

    Under the law, bitcoin must be accepted by firms when offered as payment for goods and services. Tax contributions can also be paid in the cryptocurrency.

    "If you go to a McDonald's or whatever, they cannot say we're not going to take your bitcoin, they have to take it by law because it's a legal tender," Bukele said in an online conversation he held with crypto-currency industry figures in parallel to the debate in Congress.

    Its use as legal tender will begin in 90 days, with the bitcoin-dollar exchange rate set by the market. Bukele said the government and Central Bank did not currently hold any bitcoin.

    In the capital, San Salvador, reactions were mixed, with some excited that the new currency could increase prosperity and financial options. Others were skeptical.

    "How am I going to agree with this? I haven't seen it even in photos. I know nothing about it, you need to understand your currency," said Estela Gavidia, clutching shopping bags and recalling the loss of purchasing power many poor people suffered when the dollar was adopted in 2001.

    Cryptocurrency supporters hailed the move as legitimising the emerging asset, but its impact on bitcoin regulation, taxation or adoption in other countries remains to be seen.

    There were no immediate signs that other countries would follow El Salvador's embrace of bitcoin.

    "Whether this becomes the first in what becomes a trend and then snowballs, or whether this will be a blip, we will only know through history," said Brandon Thomas, partner at advisory firm Grayline Group.

    Analysts have also said the move could complicate talks with the IMF, where El Salvador seeks a more than $1 billion program. read more

    Bukele said he will meet with the IMF on Thursday to discuss the bitcoin law, among other issues. He said in setting up the meeting he had tried to explain to them that the shift was "not going to change our macroeconomics."

    Bitcoin enjoyed its best day in two weeks, rising as much as 6% to $35,200.

    "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."

    BEACH INSPIRATION

    It was not immediately clear how long Bukele had been working on the bitcoin plan, but he said on Wednesday he was inspired by a project called Bitcoin Beach that introduced the cryptocurrency in an El Salvador beach town last year.

    He worked on the idea with Jack Mallers, CEO of Strike, a digital wallet that uses the Lightning Network to enable small payments in Bitcoin.

    Bukele has also pointed out a tweet of his from 2017, before he was a presidential candidate, in which he suggested using bitcoin.

    Emerging economies - where bank penetration is much lower than in developed countries and reliance on money transfers from abroad much higher - have quickly warmed to cryptocurrencies.

    Outside the United States, countries with the highest crypto production and trading volumes are all developing nations, according to BofA, including China, Colombia and India.

    Bukele says some 70% of people in El Salvador lack access to traditional financial services.

    But the use of digital currencies in general can also pose risks for dollarized economies, analysts say.

    "The root cause of dollarization is high local inflation, which could worsen, too, if digital currencies prove inflationary," said David Hauner at BofA.

    El Salvador relies heavily on money sent back from workers abroad. World Bank data showed remittances to the country made up nearly $6 billion or around a fifth of GDP in 2019, one of the highest ratios in the world.

    The cryptocurrency offers, in theory, a quick and cheap way to send money across borders without relying on remittance firms typically used for such transactions. It is not clear what proportion of remittances sent to El Salvador are in bitcoin.

    Converting local currencies to and from bitcoin often relies on informal brokers, while trading often demands technical knowledge.

    El Salvador will promote training and mechanisms to allow access to bitcoin transactions, the law said.

    Financial regulators and policymakers warn bitcoin facilitates money laundering and other illicit uses.

    Bukele brushed off the fears, saying criminals already use U.S. dollars and other assets to launder money.

    “The problem is not the dollar, it is the criminals,” he said.

    A SOURCE: https://www.reuters.com/world/ameri...es-first-law-bitcoin-legal-tender-2021-06-09/
     
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  2. The_J

    The_J Say No 2 Net Validations Retired Moderator Supporter

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    While interesting, I don't expect that this will really take of significantly. Or if it does, it will not have positive effects. The bitcoin is way to volatile to be used as real currency. It might lead to economic instability, if they really use it.
     
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  3. Samson

    Samson Deity

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    I suppose when you already have a foreign fiat currency as legal tender then bitcoin sounds slightly less mad, but still quite mad. Can i rant about this bit:

    1. More generally, if the theory predicts something that is not seen in reality the theory is wrong. This should be the answer any time someone says "In theory.."
    2. What theory says this? Bitcoin transaction prices are well modelled by the real maths, and are not "cheap" by most people's definition (April 21st they averaged $62.79). Other cryptocurrencies are much better (moneros spring peak was May 10th at 14 cents).
     
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  4. TheMeInTeam

    TheMeInTeam Top Logic

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    If it does take off, I'd expect it in countries where their currencies are weaker than MMO currencies or something. I wouldn't be surprised if some governments wind up banning crypto too, which is also a bad sign.
     
  5. Sofista

    Sofista Emperor

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    So they've got nothing to lose... :D
     
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  6. amadeus

    amadeus Civ2 / Law and Order!

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    Can Gresham’s law apply to a money that isn’t money?
     
  7. gangleri2001

    gangleri2001 Garbage day!!!

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    Full text of the law in the spoiler (in Spanish)

    Spoiler :



     
  8. Rashiminos

    Rashiminos Fool Prophet

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    Bitcoin's volatility is directly related to its past tendencies in being a merely speculative instrument. Circulation in an actual economy will have a dampening effect, as with other varieties of fiat currency. The general upward movement in dollar-denominated price long term is the result of deflationary pressure, this time caused by the increased complexities of the economies that cryptocurrencies are circulating in.
     
    Last edited: Jun 10, 2021
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  9. Naskra

    Naskra Emperor

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    Gresham would only apply if they were foolish enough to adopt a fixed exchange rate; that would break any bank within an hour.
     
  10. Samson

    Samson Deity

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    Bitcoin has not got the capacity to be a circulating currency.
     
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  11. El_Machinae

    El_Machinae Colour vision since 2018 Retired Moderator

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    You know, some day I should do a deepdive into what I see as the weaknesses of bitcoin to act as a transfer-of-value, and then maybe take a position in a coin that doesn't have those weaknesses. If investors actually want crypto (outside the FOMO crowd), then there eventually could be a winner.
     
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  12. innonimatu

    innonimatu Deity

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    You got me to do my laugh of the day :lol:
    They're just catering to criminals. There's such a thing as "tourism for criminals", and countries peddling services for criminals. The tax hell islands, El Salvador, and a few others.
     
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  13. Birdjaguar

    Birdjaguar Hanafubuki Super Moderator Supporter

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    @Samson That was a very informative link. Thanks.
     

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