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Updated: Sep 22, 2021

In a world-first, El Salvador approved Bitcoin as its legal tender. However, the IMF did not take this very well. But do you know why? Don’t worry, we got you covered.

During this modern era of emerging digital currency, El Salvador became the world’s first nation in June 2021 to adopt bitcoin as legal tender, which will get the legislation by September. Technically this implies that bitcoin can be used to pay for goods and services throughout the country, and recipients are legally obliged to accept it as under the law but the use of bitcoin will be optional for individuals as was clarified by President Bukele. Cryptocurrency can also be used to pay Tax contributions. The main reason they passed the bitcoin law is precisely to help people who send remittances as adding the high costs of commissions traditionally associated with sending money home would be eliminated by using the cryptocurrency. El Salvador's economy heavily relies on remittances, or you can say money sent home from abroad and surprisingly 20% of the country's gross domestic product (GDP) is made out of it.

And the fact is that more than two million Salvadoreans live outside the country, but continue to keep close ties with their place of birth, as a result sending back more than $4bn (£2.9bn) each year. So, Bitcoin could be much helpful for the country as said earlier.

However, the IMF did not take this very well and is not convinced to approve it. But do you know why? Don’t worry, we got you covered. IMF is really concerned about transparency and the environmental impact of Bitcoin mining. One of the IMF’s spokespersons also clarified that they are committed to helping El Salvador in numerous ways including currency transparency and regulatory processes.

The government did approach them for assistance on Bitcoin, but this is not something the World Bank can support given the environmental and transparency shortcomings. Also, El Salvador has been using the US dollar as legal tender for a long time now and El Salvador’s Finance Minister also clarified to the IMF that El Salvador would not abandon the US dollar and replace it with cryptocurrency and it aims to use Bitcoin as a parallel legal tender alongside the US dollar. And undoubtedly, El Salvador is audacious and has ambitions of becoming a Bitcoin mining hub. So, let’s see how this story ends up next.

By- Bhargab Majumdar


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