What happens when Bitcoin is legal tender in a moderately sized country known for its agricultural trade?
The International Monetary Fund (IMF), a global intergovernmental organization that supports economic and financial structures in the world, is expected to hold talks with El Salvador after it has approved a project for Bitcoin law today.
The problem of accepting Bitcoin
According to the Reuters, El Salvador is already nurturing a strained relationship with the IMF amid difficult economic conditions and monetary concerns – making its new policy a complicated issue.
“This might just reflect a long-term initiative or maybe just a flashy PR tactic; however, it shows a lack of coordination with impulsive announcements that contradict a cohesive economic plan,” said Siobhan Morden, head of Latin America fixed income strategy at Amherst Pierpoint Securities.
Others, such as Carlos de Sousa, portfolio manager at Vontobel Asset Management, said the move to adopt Bitcoin made the current tax evasion situation even more difficult to deal with.
“Cryptocurrencies are, in general, a very easy way to avoid taxes and a very easy way to just avoid the authorities because it’s a completely decentralized system,” said De Sousa, adding:
“You can do money laundering, you can do tax evasion and so on.”
Adoption: No longer a meme
President Nayib Bukele said the bill to accept Bitcoin as “legal tender” passed Congress this morning, adding that the asset could be used to make any payments within the country, and old debts could be paid with Bitcoin.
The #BitcoinLaw has been approved by the supermajority in the Salvadoran Congress.
62 out of 84 votes!
— Nayib Bukele 🇸🇻 (@nayibbukele) June 9, 2021
“#BitcoinLaw was approved by an absolute majority in the Salvadoran Congress.
62 out of 84 votes!
History! # BTC”
62 of 84 possible votes – representing the majority of lawmakers – voted in favor of the initiative, despite widespread concern about the potential impact on El Salvador’s program with the IMF.
The change, however, is not as sudden as some make it. “The ability to do bitcoin operations should not be a cause for concern,” Minister of Trade and Investment Miguel Kattan said during a press conference today.
He claimed that Bitcoin was “already of limited use in El Salvador” and that citizens were even using it to buy local street snacks, despite criticisms of low speed and high fees.