The new rule, which was announced yesterday amid much excitement at Miami's Bitcoin 2021 conference, has stoked speculation that Salvadorans may soon be allowed to buy groceries with Bitcoin.
However, speculations arev that Bukele, by supporting decentralized finance and removing the country's central bank, is unlikely to meet Bitcoin maximalists' wishes.
Tweets and Mixed Reactions
According to Selgin, the movement toward Bitcoin may preclude the Biden administration from imposing any sanctions.
Last month, Bukele removed his political opponents from the country's court system. On June 3, the Salvadorian legislature, supported by Bukele's party, passed a law increasing the president's jurisdiction over the central bank, thereby limiting the private sector's capacity to fight for the election of central bank board members.
"Perhaps it is his way of snubbing the dollar or the US authorities," Selgin said, or "stopping the flow of the dollar into the country."
As a consequence, El Salvador is unlikely to become a Bitcoin nation very soon. Nonetheless, it is a small but essential step toward Bitcoin's mainstream adoption.
"Do not applaud El Salvador's president, who has shown authoritarian behavior," tweeted Alex Gladstein, a Bitcoin advocate and strategy director at the Human Rights Foundation, yesterday. "Celebrate the action that will, in time, restrict the power that his or any later government has over the citizenry."
Other Twitter users gave similar reaction to Bukele's announcement:
El Salvador's Ironic State
He claims that just 30% of Salvadorans have bank accounts, making transactions in fiat currencies prohibitively expensive. This is noteworthy since remittances make up 21% of the country's Gross Domestic Product.
However, the enthusiasm around this tale may be overstated. Declaring Bitcoin lawful money, according to George Selgin, head of Cato's Center for Monetary and Financial Alternatives, has nothing to do with remittances or payments.
The bill's only objective, according to Selgin, is to allow Salvadorans to use Bitcoin to repay commitments committed in the currency. "Not very earth-shattering in and of itself," he said.
He believes that the change will allow banks to interact with Bitcoin, accept deposits, and issue loans in the cryptocurrency.
According to Selgin, the new law would not affect how Bitcoin is used in ordinary transactions "save to the extent that it results in a different tax categorization of such transactions."
El Salvador has been de-dollarized
El Salvador's recent monetary history confirms Bukele's assertion. Around the turn of the century, El Salvador's national currency, the colón, collapsed due to hyperinflation.
To safeguard the economy, El Salvador declared the US dollar to be the official currency. The colón was phased out the following year in El Salvador, and the dollar has ruled ever since.
"[President] Bukele is aiming to achieve with Bitcoin what El Salvador did with the USD in 2001," Selgin stated.
He feels that since the country has already abandoned its national currency in favor of the dollar, there is "nothing to lose by allowing citizens to freely choose between two legally similar alternative currency choices."
