Crypto Global

Bitcoin is set to become legal tender in El Salvador

Jun 8, 2021

In today’s article we have some of the most exciting news we've seen in quite a while. The country of El Salvador was actually able to switch to the Bitcoin standard. El Salvador's President Nayib Bukele is in the process of putting forward a bill that will introduce Bitcoin as legal tender in El Salvador and add Bitcoin to the state balance sheet.

The president announced this in a video message that was shown on Saturday at the Bitcoin 2021 conference in Miami. At a time when we are seeing the possible collapse of the US dollar system, El Salvador's recognition of Bitcoin should be made known to everyone. Russia, for example, will completely remove US dollar assets in its national welfare fund. This is an asset fund financed from oil revenues in Russia. Currently, the proportion of their investments in dollar assets was about 35 percent. Russia could convert these US dollar assets into other currencies, such as increasing its euro holdings or increasing its gold holdings. China is also trying to bypass the USD in commodities trading.

The El Salvador news has to be seen in the context of countries moving away from the dollar. This news is of great importance to the foreign exchange markets and to the financial markets. To understand this, one has to remember that we used to have a gold standard where the US dollar could be redeemed for gold and then everyone else pegged their currency to the US dollar. This happened in the course of the Bretton Woods Agreement after World War II. This ended in 1971 because many countries were demanding more and more gold for US dollars, but the US had printed more US dollars than it had in gold. The 37th President of the USA, Richard Nixon, was then forced to close this gold delivery and replaced the gold standard with a petrodollar standard.

Many media reports that El Salvador will be the first country in which Bitcoin will become legal tender. The Japanese financial services agency confirmed back in 2017 that Bitcoin and several cryptocurrencies can be used as legally accepted means of payment in the country. In contrast to Japan, which obviously still has the Yen, El Salvador will switch entirely to Bitcoin.

With the recognition of Bitcoin as legal tender, it is also intended to make it easier for Salvadorans living abroad to send money to their families at home. Much of the $6 billion sent to more than a million low-income families is lost to intermediaries, Bukele said. Adopting Bitcoin as legal tender is a huge step forward for the people of El Salvador to bypass companies like Western Union that charge outrageous fees for sending money.