El Salvador has formally adopted cryptocurrency, making Bitcoin the legal tender or official currency.
For now, the Central American country’s official currency is the US dollar. From now on, Bitcoin will be used alongside the American currency.
El Salvador’s young President Nayib Bukele looks optimistic about the future of the digital currency, although the value of Bitcoin has become extremely volatile in recent days.
He told reporters recently that cryptocurrency would generate jobs and help El Salvador achieve financial inclusion.
The Central American country is heavily dependent on remittances sent by Salvadorans living in the United States, so much so that remittances account for 20% of the country’s GDP.
Bitcoin is easier for digital payment, the President told Congressmen recently. More than a million Salvadorans are living abroad and they send home US$4 billion annually.
Analysts are not convinced. That’s because 70% of the country’s citizens do not have a bank account. Moreover, Bitcoin prices vary drastically.
Due to the poor financial system, banks in the country charge hefty fees on money transfers, which take days to arrive. Many people find the need to visit the bank in person to pick up the cash, according to a report from the BBC.
Depending on Bitcoin is dangerous for El Salvador, because its value will have no direct connection with the country’s real economy.
El Salvador officials have said that bitcoin transactions in the country would be optional and tied to the dollar exchange rate. El Salvador has become the first country in the world to adopt bitcoin as legal.