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El Salvador President Nayib Bukele speaks during a news conference in San Salvador, El Salvador, on June 6, 2021. Source: Jose Cabezas/Reuters.
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  • El Salvador becomes the first country in the world to adopt bitcoin as legal tender
  • President Nayib Bukele has previously spruiked bitcoin for its potential to help citizens living abroad to send remittances back home
  • The immediate convertibility of bitcoin to dollars has been guaranteed through a trust created at El Salvador’s development bank BANDESAL
  • According to the new laws, bitcoin must be accepted by businesses when offered as payment for goods and services
  • Bitcoin’s use as legal tender will begin in 90 days, with the bitcoin-to-dollar exchange rate to be set by the market

El Salvador has become the first country in the world to adopt bitcoin as legal tender after Congress approved President Nayib Bukele’s proposal to embrace the digital asset.

With 62 out of 84 possible votes, lawmakers voted in favour of the plan despite concerns about the potential impact on El Salvador’s program with the International Monetary Fund (IMF).

Bukele has previously spruiked bitcoin for its potential to help citizens living abroad to send remittances back home, while saying the US dollar will also continue as legal currency.

“It will bring financial inclusion, investment, tourism, innovation and economic development for our country,” Bukele said in a tweet.

The use of bitcoin will be optional and the government has guaranteed convertibility to dollars at the time of transaction through a trust created at El Salvador’s development bank BANDESAL.

According to the new laws, bitcoin must be accepted by businesses when offered as payment for goods and services. Tax contributions can also be paid.

Its use as legal tender will begin in 90 days, with the bitcoin-to-dollar exchange rate to be set by the market.

Supporters of cryptocurrency hailed the decision as legitimising the asset, but its impact on regulation, taxation and adoption in other countries remains to be seen.

“Whether this becomes the first in what becomes a trend and then snowballs, or whether this will be a blip, we will only know through history,” said Brandon Thomas, partner at advisory firm Grayline Group.

Analysts have also said the move could complicate talks with the IMF, where El Salvador seeks a more than US$1 billion (roughly A$1.29 billion) program.

“The market will now be focused on adoption through El Salvador and whether other nations follow,” said Richard Galvin of crypto fund Digital Asset Capital Management.

“This could be a key catalyst for bitcoin over the next two to three years.”

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