For the first time! El Salvador uses Bitcoin as legal tender. What changes will this bring to the local area?

Cailian Press (Shanghai, editor Qi Lin/intern editor Yang Fan) reported that on Tuesday, El Salvador became the first country in the world to circulate Bitcoin as legal tender. Supporters said this would reduce the commission costs of sending large remittances from abroad, but opponents warned that this might also increase the probability of money laundering.

The initiative is being led by President Nayib Bukele, who says using Bitcoin could save Salvadorans $400 million in transaction fees each year, with most of the remittances coming from the United States.

Prior to the introduction of this policy, President Bukele tweeted that El Salvador had purchased 400 cryptocurrencies.

At current prices, the market value exceeds $20 million. The move also pushed up the price of Bitcoin by 1.49% to above $52,680.

The government has installed 200 Bitcoin ATMs across the country that feature the Chivo digital wallet, which comes preloaded with $30 worth of currency for users who register using their Salvadoran national ID number. The devices allow cryptocurrencies to be exchanged for dollars and withdrawn without commissions.

The government said the dollar would remain the country's currency for public purposes and that merchants technically unable to accept electronic money would not be subject to the law.

The small town of El Zonte is at the center of this policy, and is currently working to become one of the world's first Bitcoin economies.

"It would be beneficial to have bitcoin as a legal tender," said Reina Isabel Aguilar, a shop owner who lives here. "We have family in the U.S. and they can send money for free. If you go through a bank, there are fees to send money from the U.S. to El Salvador."

Because El Salvador's dollarized economy relies heavily on remittances sent home by overseas immigrants, last year alone, the amount of remittances to El Salvador was close to US$6 billion, accounting for 23% of its GDP, making it one of the countries with the highest remittance rates in the world.

Public suspicion

The policy’s initiator, Nayib Bukele, is charismatic and popular in the country, and although his approval rating is over 80%, according to polls, Salvadorans are skeptical about the use of Bitcoin, with two-thirds of respondents saying the law should be repealed, while more than 70% said they would prefer to use the U.S. dollar.

Some analysts believe that the move to make Bitcoin legal tender alongside the U.S. dollar could disrupt El Salvador’s plans to seek a more than $1 billion financing deal with the International Monetary Fund (IMF).

"Cryptocurrency is attractive, but it's untested and complicated, especially for a country like El Salvador, it's extremely risky," said Nathalie Marshik, managing director at Stifel Nicolaus & Co. "There's also the question of whether Bandesal (El Salvadorian bank) has enough capital and whether the regulation of cryptocurrencies is effective. These are still question marks."

While the Bahamas launched its own central bank-backed digital currency, the Sand Dollar, this year and Venezuela has its own e-currency, the Petro, they differ significantly from decentralized cryptocurrencies like Bitcoin, whose users value independence from governments and central banks.

The actions of other governments in Central and South America are also being closely watched. Last month, Cuba moved to legalize cryptocurrencies already in use on the island, while lawmakers in other countries including Panama and Uruguay have proposed similar legislation.