El Salvador is planning to make “Bitcoin a legal currency”

What is the News?

El Salvador is planning to make Bitcoin a legal currency. If made, then El Salvador will be the first country in the world to officially classify Bitcoin as a legal currency.

What did El Salvador do?

• El Salvador is planning to make Bitcoin a legal currency. This means that the bitcoin must be accepted when offered as payment for goods and services. The tax contributors can also pay through bitcoin.
• The US dollar will continue to circulate alongside Bitcoin as the national currency in El Salvador.

Note:

• El Salvador has not had its own monetary policy since 2001 when it made the US dollar the official currency.
• Along with Ecuador and Panama, El Salvador is currently among three nations in Latin America to have a ‘dollarized economy.

Read Also :-Bitcoins in India: An Overview

Why did El Salvador make Bitcoin a legal currency?

• Fewer Remittances: The remittances in El Salvador account for roughly 20% of the nation’s gross domestic product. However, a large amount of this money gets lost in intermediaries fees. Hence, it is expected that Bitcoin adoption may make remittances quicker and cheaper.
• More Independence: El Salvador is a dollarized economy. So, the fiscal and monetary decisions of the U.S. government and Federal Reserve have a tremendous impact on El Salvador. Hence, adopting Bitcoin could give the nation more independence.
• Financial Inclusion: Nearly 70% of El Salvador’s population does not have a bank account and relies on the informal economy. So, Bitcoin will help increase financial inclusion in El Salvador.

Concerns against this move:

• Legalizing bitcoin in the absence of a central regulating authority will have the potential for fraud and money laundering, high energy costs and extreme volatility.

Governments on Cryptocurrencies:

• An increase in demand for cryptocurrencies has grabbed the attention of governments around the world. A few countries are even looking to launch their own virtual Cryptocurrencies called central bank digital currencies(CBDCs).
  • For example, China has started a trial run of their digital currency e- RMB amid a pandemic
• In India, the Government has floated the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. The bill prohibits all private cryptocurrencies and lays down the regulatory framework for the launch of an “official digital currency”.

Read Also :-El Salvador becomes “Malaria-free Country”

About Bitcoin:

• Bitcoin is a type of Cryptocurrency that enables instant payments to anyone.
• Introduced in: Bitcoin was introduced in 2009. It is based on an open-source protocol and is not issued by any central authority.
• Origin: The origin of Bitcoin is unclear, as is who founded it. A person, or a group of people, who went by the identity of Satoshi Nakamoto are said to have conceptualised an accounting system in the aftermath of the 2008 financial crisis.

Source: Indian Express