By Natalie DeCoste
Big things are happening for bitcoin as the cryptocurrency is now the official currency of El Salvador alongside the U.S. dollar. The country is the first to adopt the cryptocurrency as its official legal tender.
The news was revealed in the early morning, Eastern Standard Time, on Sept. 7. El Salvador’s president Nayib Bukele tweeted out, “In 3 minutes, we make history” with the hashtags #BitcoinDay and #BTC. The news follows yesterday’s tweet from the president that the country had purchased 200 new coins, bringing its total to 400 bitcoins, valued at $20.9 million by today’s prices.
El Salvador’s government is spending more than $225 million on its plan for implementing the change. The country’s path to making bitcoin the official currency includes a $30 credit in bitcoin to those who begin using Chivo, slang for “cool,” which is a government-run e-wallet that can be used for purchases in bitcoin or U.S. dollars.
“It’s a pretty monumental step in the evolution of bitcoin,” said Garrick Hileman, head of research at Blockchain.com, one of the world’s largest cryptocurrency transactions firms.
The adoption of bitcoin as the official currency of a country is sure to attract close monitoring from crypto advocates, global financial institutions, and governments worldwide.
Advocates for cryptocurrencies as official currencies have argued that the move will make it cheaper and easier for migrants to send money home to El Salvador, which is important for the country’s economy. Sending money back into the country accounts for over 24% of the country’s gross domestic product, according to figures from the World Bank reported by CNBC.
Access to bitcoin also raises some people’s hope that the move could improve citizens’ access to financial services. El Salvador has partnered with digital finance company Strike to create the required infrastructure to launch this currency. The CEO of Strike weighed in on the financial services problem facing the country and told CNN that over 70% of the country’s “active population” does not currently have a bank account.
However, there are concerns about using a cryptocurrency for an official legal tender. Economists say that the wild fluctuations associated with bitcoin risk hurting El Salvador’s tax revenue and that it has neither the policy tools nor the financial ability to contain any speculation.
“The government is betting more than $200 million in a virtual casino, and that’s taxpayer money,” said Ricardo Castañeda, senior economist at the Central American Institute for Fiscal Studies.
The concerns are all the more validated by the dip in the price of bitcoin following the announcement. Bitcoin fell as low as 16% Tuesday morning, trading at $46,860, according to Coin Metrics (these numbers are likely to continue to fluctuate).