However, there are fears that the introduction of such a volatile currency into history could harm Salvadorans and threaten economic stability. Bitcoin hit an all-time high of over $60,000 in April before losing nearly half of its value in a crash later this summer. The bill contributed to Moody`s decision to downgrade El Salvador`s debt, according to the Financial Times, and the IMF also warned of its potentially destabilizing effects. El Salvador has been preparing to take over cryptocurrency for months after the legislation was passed in June. Last month, the installation of 200 ATMs began across the country to allow citizens to switch between the country`s two official currencies. It is also launching its own digital wallet called “Chivo,” which grants users $30 free Bitcoin to encourage adoption. Even with the approval of Bitcoin as legal tender, “The U.S. dollar will continue to be El Salvador`s currency and no one will be forced to pay in Bitcoin,” Bukele said. The colón was the currency of El Salvador from 1892 until 2001, when it was replaced by the US dollar under President Francisco Flores. The Colón was divided into 100 centavos and its ISO 4217 code was SVC.
The plural is “colones” in Spanish and the coin was named after Christopher Columbus, known as Cristóbal Colón in Spanish. As of 2021, El Salvador has three legal currencies; However, only two of them can be used, the US dollar and Bitcoin. Many aspects of cryptocurrencies are baffling, including the success of a joke like Dogecoin. But El Salvador`s introduction of Bitcoin as legal tender is perhaps the strangest and potentially disturbing example of all. The Bahamas was one of the first countries to issue a CBDC, launching a cryptocurrency version of the Bahamian dollar last year to avoid moving physical money across its 700 small islands. Cambodia also launched a CBDC version of its own currency called Bakong in 2020. In fact, Bitcoin and its other cryptocurrencies were born out of an anarcho-libertarian distrust of central banks. It is true that many central banks, particularly in developing countries, have devalued their currencies in the past. But the introduction of Bitcoin as legal tender makes little sense to El Salvador. The radical cryptocurrency experiment was designed to boost the economy and make it cheaper for 3 million Salvadorans living abroad to send remittances home.
Unlike a decentralized cryptocurrency, which is not controlled by a single organization, a central bank would manage a CBDC. But it could retain some of the perceived benefits of a cryptocurrency, such as easy transfers of large sums, the ability to abolish physical money, and an audit trail to combat corruption and tax evasion. But while cryptocurrencies like Bitcoin have hard-coded limits on how many coins will ever exist, a CBDC could be created from scratch by central banks with quantitative easing like traditional currencies – what Bitcoin proponents call a major drawback. In 2001, the Salvadoran Congress passed the Monetary Integration Law, which made the U.S. dollar legal even though the Salvadoran settler remained in circulation. But then the colon was removed from circulation and the prices of staple foods rose. In the middle of the 19th century, farms produced tin sheets (earth leaves) with the name of the farm and were used as payment to employees, the leaves had only in the farm store that displayed them, so a monopoly appeared. [2] Workers could not leave their jobs without losing everything.
During the existence of the Central American Federation, the monetary system did not change from the colonial system and continued to use money by weight as the main currency with circuses and real estate sheets. After the dissolution of the federation, the Salvadoran government decreed the issuance of the first national currency, “Reales”, silver coins with engraved “R” and “escudos” were gold coins with an engraved “E”. [3] Cryptocurrencies are a confusing entity, but adoption as legal tender is the strangest and most disturbing aspect of all. Critics have warned that the currency`s lack of transparency could attract an increase in criminal activity in the country and that its wild fluctuations in value could quickly wipe out users` savings. There is one function that cryptocurrencies seem to fulfill: to facilitate illegal transactions. Needless to say, this is not a use that should be encouraged. Even worse in terms of overall well-being, “mining” cryptocurrencies like Bitcoin, which rely on blockchain technology to verify transactions, requires surprisingly large amounts of energy, harming the environment. Thus, on 19 May, the legislature approved at the initiative of the President. In June 1934, the Central Bank of El Salvador was created, an institution whose objectives were to control the volume of credit and the demand for foreign currency, and was also given exclusive authority to issue money. On June 19, 1934, the Central Bank was established as the governing body of monetary policy and the sole currency issuing body in the country. On January 1, 2001, under the government of President Francisco Flores, the Law on Monetary Integration entered into force and allowed the free circulation of the US dollar in the country (see dollarization) with a fixed exchange rate of 8.75 colones. The colon has not officially ceased to be legal tender.
The new Bitcoin ATMs, which were supposed to convert cryptocurrency into cash, did not work, and there were widespread problems downloading Chivo crypto wallets. In the capital, 1,000 people took to the streets to protest, holding placards demanding that the government focus on El Salvador`s real problems, such as the ever-increasing cost of living, human rights concerns, and an epidemic of missing women. Travel: Yes, you can book trips with Bitcoin and other cryptocurrencies – but should you? Even accepting a role for one or two cryptocurrencies, the number of cryptocurrencies created is incredibly high: between 6,000 and 11,000 (or up to 70,000 digital tokens). The whole idea of the usefulness of money is that people choose to use the same currency as others, thus minimizing transaction costs. They cannot assess and track the creditworthiness of dozens of issuers. Money is a kind of natural monopoly, which is why governments have long since taken responsibility for providing it. As of September 2021, El Salvador had three legal currencies (colon, US dollar, and bitcoin). But in reality, only two work. The Salvadoran colon is still legal tender in the country; However, it is no longer in circulation. Known as the “Bitcoin Beach Project,” the first Bitcoin ATM was installed here after an anonymous donor made a charitable donation to cryptocurrency. One of the first stores to accept it was that of “Mama Rosa”, whose son Jorge Valenzuela led the initiative. Bitcoin itself is also volatile (the value of the currency has fallen to £21,700 and £46,500 this year), which is not a desirable feature for a legal tender.
A company that accepts Bitcoin payments may find that the value of this currency has dropped when buying new shares.