El Salvador President Nayib Bukele plans to introduce legislation that will make it the world’s first sovereign nation to adopt bitcoin as legal tender.
Why Is El Salvador Making Bitcoin Legal Tender?
The smallest country in Central America, El Salvador’s official currency is the U.S. dollar.
In his recorded message to the conference, Bukele outlined two reasons for his move. First, he says that, “In the short term, this will generate jobs and help provide financial inclusion to thousands outside the formal economy.”
El Salvador is considered a poor country and 70 percent of its population does not have access to a bank account. On Twitter, Bukele stated that even if one percent of the world’s Bitcoin was invested in his country, it would increase the GDP by 25%. According to the World Bank, El Salvador had GDP of $27 billion in 2019.
The hope is that Bitcoin will make international money transfers cheaper and easier. This is especially important for El Salvador because remittances make up a large portion of the country’s economy. In 2020 $5.9 billion, or roughly approximately 23% of the country’s total economic output came from remittances. Since sending remittances often comes with substantial fees, anything with the potential to lower the cost could be of significant benefit to the Salvadoran economy.
Bukele’s second reason was more altruistic. According to him, the move was an attempt to push humanity “at least a tiny bit in the right direction.”