BITCOIN’S LEGAL TENDER PUSH

President Nayib Bukele announced today that El Salvador will become the first country to adopt Bitcoin as legal tender after the Bitcoin Law was passed by the country’s congress. Unlike in Australia, the digital currency may be used in all private and public transactions including tax contributions. Bukele has importantly guaranteed the exchange rate between Bitcoin and US Dollars will be determined by free market forces and that El Salvadorians will be able to exchange the digital currency to the ‘exact’ value in dollars “at the moment of each transaction”.

The new law likely aims to facilitate greater access to financial services by El Salvadorians and will aid in remittances from aboard. Currently, when workers abroad send back money to El Salvador (comprising one fifth of their GDP in 2019) there are fees for digital bank transfers and limitations on cash imposed by banking and government agencies. By making Bitcoin a legal tender, the fees and ‘wastage’ involved in transferring wealth from overseas is significantly reduced as funds can be transferred between ‘digital wallets’ without having to pass through any bank or government agency. This combined with Bitcoin’s legal tender status will realise the currency’s value in the El Salvadorian economy.

So why is Australia and other western countries reluctant to support Bitcoin as a legal tender? Among the many reasons of currency destabilisation, hyperinflation and lack of government control is the ability to regulate and promote the security and safety of those using Bitcoin. El Salvador has partnered with a private crypto payment processor company, Strike. In allowing a private company to create ‘digital wallets’ for nearly the entire country, there are grave privacy and security liabilities that, in Australia, are taken on by the banks and licensed financial service providers regulated by ASIC (Australian Securities and Investments Commission) and APRA (Australian Prudential Regulation Authority).

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Please note that this article does not constitute legal advice and Straits Lawyers will not be legally responsible for any actions you take based on this article.