El Salvador becomes the first nation in the world to approve Bitcoin as legal tender

El Salvador approved a proposal from President Nayib Bukele for a law to classify Bitcoin as legal tender, making the Central American nation the first in the world to do so.

A majority of lawmakers voted in favour of the initiative late on Tuesday to create a law that will formally embrace the cryptocurrency, despite concern about the potential effect on El Salvador’s programme with the International Monetary Fund

“The #BitcoinLaw has just been approved by a qualified majority” in the legislative assembly, President Nayib Bukele tweeted after the vote in the assembly.

Bukele has touted the use of Bitcoin for its potential to help Salvadorans living abroad send remittances back home while saying the US dollar will also continue as legal tender.

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

He added that the use of Bitcoin, whose use will be optional, would not bring risks to users. Its use as legal tender will go into law in 90 days.

“The government will guarantee the convertibility to the exact value in dollars at the moment of each transaction,” Bukele said.

El Salvador’s dollarised economy relies heavily on money sent back from citizens working abroad.

World Bank data showed remittances to the country made up nearly $6 billion, about a fifth of GDP, in 2019, one of the highest ratios in the world.

Experts have said the move to Bitcoin could complicate talks with the IMF, where El Salvador is seeking a more than $1 billion programme.

A cryptocurrency is a digital form of money that can be used to pay for some transactions online. Unlike real currencies, cryptocurrencies only exist online and are not backed by any government or central bank.