El Salvador buys first 200 bitcoins ahead of adopting cryptocurrency as legal tender

·2 min read
A woman outside a store that accepts bitcoins in El Zonte, La Libertad, El Salvador on 4 September 2021 (AFP via Getty Images)
A woman outside a store that accepts bitcoins in El Zonte, La Libertad, El Salvador on 4 September 2021 (AFP via Getty Images)

El Salvador bought its first 200 bitcoins on Monday ahead of formally adopting the cryptocurrency as legal tender.

The country’s president, Nayib Bukele announced the purchase on Twitter, adding that more would be purchased in the coming days.

He said: “El Salvador has just bought it’s first 200 coins.

“Our brokers will be buying a lot more as the deadline approaches.”

In anticipation of the formal adoption, he added: “Tomorrow, for the first time in history, all the eyes of the world will be on El Salvador.”

In June, the Congress of El Salvador approved a law that would make bitcoin legal tender in the country from 7 September, with the goal of boosting the economy.

This change in legislation will make El Salvador the first country in the world to recognise the cryptocurrency as legal tender.

The president has said that the use of bitcoin will save Salvadoarans who live internationally millions of dollars in commissions on money that they send back to the Central American country.

Earlier this year he said that the currency “will be a great benefit for our people”.

But many Salvadorans have been wary about using the cryptocurrency, most notably around its volatility. In April, a full bitcoin was worth around USD$65,000 (£47,000), in June it was worth half that. Now, it has rebounded to around USD$50,000.

Critics have also suggested that using bitcoins as legal tender could increase regulatory and financial risks for financial institutions, particularly around international anti-money laundering and terrorist financing rules.

Ratings agency Fitch Ratings said: “Capital gains will not be taxed and taxes can be paid in bitcoin, which could attract foreign inflows of bitcoin to the country. This may increase the risks that proceeds from illicit activities pass through the Salvadoran financial system”

Despite concerns, all businesses will have to accept payment in bitcoin from Tuesday, apart from those that lack the technology to do so.

The government has established a digital wallet app called Chivo that can be used for payments and remittances in Bitcoin.

All Salvadoran citizens who download it and sign up are being offered $30 worth of bitcoin in credit as an incentive. Some 200 kiosks are also being set up throughout the country to enable people to make deposits or withdraw their money in dollars.

The costs to setup the new system have come from a $150m trust fund administered by the legislature.

From Tuesday, bitcoin will be considered legal tender in El Salvador, but the US dollar will continue to be the county’s main currency and those who prefer to use dollars will not be forced to switch to the cryptocurrency.

With additional reporting from Reuters

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