The Salvadoran Bitcoin Standard Is Not Without Criticism
It’s official: the first country to embrace Bitcoin and declare it legal tender is El Salvador.
After his initial announcement on Saturday, Salvadoran president Nayib Bukele went through with his promise to draft the historic bill and submitted it to Congress on Tuesday:
Bukele’s allies hold a super-majority of 64 of the 84 seats in Congress. 43 votes were needed to pass the bill;62 votes were in favour of the ruling, making Bitcoin legal tender by law once signed.
The bill marks a historic moment for Bitcoin in multiple ways. Not only does it lift Bitcoin to what many consider the next stage of adoption — from a collectible to a store of value and now a medium of exchange — but it puts El Salvador on the map as a prototype of a Bitcoin nation, with many around the world watching the Central American country.
“El Salvador is not just a country anymore, it’s a symbol of what Bitcoin can do,” Bukele said on a Twitter Spaces session minutes before the bill was passed.
Even before the law was made official, El Salvador had begun seeing encouragement from abroad, with a growing number of politicians across Central and South America switching on the laser eyes, some expressing their support, others even announcing Bitcoin plans for their own countries.
As the first nation to take this step, El Salvador is set to become the example for anybody who follows in its footsteps. Nayib Bukele and his brother Karim Bukele, both present in the Twitter Spaces session, appeared well aware and prepared for both the good and the bad to come with the move. While he acknowledged the increased press coverage the country has been getting since its announcement on Saturday, he also expected that “a lot of people are probably going to attack this move because they don’t like it.”
He further referenced comments doubting the impact of El Salvador’s decision based on its size: “A lot of people might laugh and say it’s a small country. But it doesn’t matter, it’s happening and it’s going to change a lot of things. And it’s going to start here, and it’s beautiful to be part of this great change for humanity.”
Bukele announced he would sign the bill into law as soon as possible, either within the day or during the following morning.
El Salvador Adopts Bitcoin As Legal Tender
The bill gives further insight into El Salvador’s plans to adopt Bitcoin; in the document, Bukele explains the move with the state’s obligation to “promote and protect private enterprise” to “increase national wealth” and address the status quo in the country, in which 70% of the population don’t have access to a bank account.
“In order to promote the economic growth of the nation, it is necessary to authorize the circulation of a digital currency whose value answers exclusively to free-market criteria,” the bill elaborates.
Bukele himself spoke of an opportunity for a better future, enabled by Bitcoin: “Young people today won’t talk to you about flying cars […] They talk about nuclear wars, pests, and climate catastrophes. When did our future change from something so beautiful to something dystopian?”“ We build our own future; the future is not imposed on us. […] So why do we have to resign ourselves to this dystopian future? “
Bitcoin solves a lot of the problems that cause people to feel pessimistic about the future, according to Bukele, who named “inequality that comes from central banks” as well as uncontrolled inflation as key to the widespread bleak outlook onto the future.
“We want to not only support it, but we want to also demonstrate that the world can benefit from it,” he said about the developments in El Salvador.
What Will Change With the New Law?
Legal tender status means that merchants will from now on have to accept bitcoin by law. At the same time, Salvadorans “have to take the bitcoin, but not the risk,” according to Bukele. For this purpose, the Salvadoran government plans to set up a Trust Fund of $150 million dollars, which will allow its citizens to convert bitcoin to dollars if they prefer not to hold the asset. Conversions to dollars will be done via a government wallet, which Bukele plans to build with Bitcoin payments application developer Strike.
Already, El Salvador is experiencing increased interest from Bitcoin proponents overseas, and the country seeks to welcome expats and make it easy for them to settle down in the country. To do so, Bukele plans to sign a new law that gives permanent residence to anybody who invests 3 bitcoin (approximately $100,000 at press time) in El Salvador. Such investments can be made in real estate or in the form of other local investments. Once proof of the investment or the intent and financial means for the investment is given, El Salvador will issue permanent residence rights to an expat. The minimum investment will be denominated in bitcoin, not in dollars.
Bukele further plans to work on improved connectivity infrastructure to ensure the population has increased access to the internet.
De-dollarization, however, is not on the agenda for El Salvador: since 2001, the country has been using the U.S. dollar as its primary currency, as opposed to its own currency, which was phased out on the basis of high volatility. By adopting the dollar, El Salvador hoped to attract investors, which Bukele said was likely achieved. In the same spirit, getting rid of the dollar at this point “won’t serve any purpose for us,” he said.“ Having the dollar as legal tender doesn’t do any harm to the goal of attracting talent. “
The government itself does not hold any bitcoin at this point, according to Bukele.
While there are no plans at the moment, the Salvadoran president also mused about the possibility of promoting Bitcoin mining in the country, noting that El Salvador has access to geothermal energy sources; the country counts more than 20 volcanos. “Right now we are looking at how we lose a lot of energy by transporting energy to the cities,” he noted. To address the issue, El Salvador plans to promote the establishment of industrial plants in areas where geothermal energy is sourced. This energy would be “not only 100% renewable, but also 100% clean.”
The Salvadoran Bitcoin Standard Is Not Without Criticism
While El Salvador is receiving a lot of praise especially from the wider Bitcoin space, not everybody is expected to agree with the move.
In his initial announcement, Bukele fired against the Federal Reserve, stating that “central banks increasingly [take] actions that may cause harm to the economic stability of El Salvador.”
Some anticipate that the new bill might get El Salvador in trouble with the IMF, with whom the country is reportedly seeking a $1 billion program to address budget gaps.
Others have criticized support of the president based on worries over corruption among some of his allies as well as alleged authoritarian actions: in May, Bukele fired five Supreme Court judges and the Attorney General after clashing with the Supreme Court over his aggressive stay-at-home orders to curb the pandemic. The move was criticized as an attack on judicial independence. Paired with Bukele’s super-majority in Congress, regime critics fear the president is looking to assume total political power.
For many Bitcoin proponents, however, there is more at play. For them, supporting El Salvador’s Bitcoin law is not about endorsing political views: rather, it is about the potential of the adoption of money that promotes freedom, and that a government, even an authoritarian one, couldn’t control if it tried.
“In the coming years, when you see a government — especially an authoritarian one — adopting Bitcoin, consider the open internet,” Human Rights Foundation CSO Alex Gladstein wrote on Twitter, “is it bad or good for regimes to connect their people to the world with information via the open web? The same is true for open finance.”
Bukele himself has outlined his plans for the use of Bitcoin to be “as free as it gets.” While the country isn’t looking to “attract criminals,” it wants to promote freedom, according to the president: “Being free is not a synonym of a bad thing. I don’t know who changed that definition, because it’s supposed to be something good.”