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Bitcoin is now legal tender in El Salvador

A majority of lawmakers have approved a proposal by Salvador President Nayib Bukele to allow bitcoin to be used as legal tender in the country along with the US dollar.

The law states that “all economic agents must accept bitcoin as a form of payment when offered by the purchaser of a good or service.” It also says that tax payments can now be made in bitcoin.

Bukele, 39, is a right-wing populist who rose to power in 2019. He previously said El Salvador would partner with digital finance company Strike to establish the infrastructure needed to support the use of bitcoin as an official currency.

In a tweet prior to the vote, Bukele said the use of bitcoin as a legal tender would promote financial integration, tourism, innovation and economic development. El Salvador is the smallest country in Central America, and although it was quick to contain the coronavirus pandemic, the economy was hit hard last year, according to the World Bank.

The future of digital currencies

Although central banks around the world have responded to bitcoin with fascination, they have been reluctant to embrace cryptocurrencies because of their extreme volatility. Bitcoin, for example, crashed by more than half its value earlier this year after a rocket to a record high of over $ 60,000. Other, more sparsely traded cryptocurrencies are even more volatile and trade up and down like lashes – often based on speculation or meme tweets from Tesla (TSLA) CEO Elon Musk.

However, the rise in cryptocurrency’s popularity has led the US Federal Reserve to take a hard look at the limitations of the old-fashioned dollar – especially around payments and remittances that can take days to complete. Bitcoin transactions happen almost instantly.

Cryptocurrencies also do not require a bank account. Instead, they are kept in digital wallets. It could help people in poorer communities – like many in El Salvador, but also in minority communities in the United States – gain greater access to their economy.

Lael Brainard, a member of the Federal Reserve Board of Governors, filed a lawsuit last month for a secure, central bank-backed digital currency that could create a more efficient payment system and expand financial services to Americans who have been understaffed by traditional banks. .

Federal Reserve Chairman Jerome Powell announced in May that the central bank would publish a paper this summer outlining the board’s thinking on the benefits and risks of a digital U.S. dollar.

Although cryptocurrencies like bitcoin are digital, a central bank’s digital currency would be fundamentally different from current cryptocurrencies because it would still be controlled by a central bank rather than a decentralized computer network.

– Stefano Pozzebon, George Engels and Allison Morrow contributed to this report

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