Nayib Bukele, president of the Central American nation of El Salvador, has had a law passed, as announced, that makes Bitcoin official currency. We take a look at what this means – and why suddenly politicians from so many Latin American countries are adorning their Twitter profiles with laser eyes.
You’re gone for a week, and already the first country in the world is making Bitcoin an official currency, while politicians from all over Latin America are painting laser eyes on their Twitter profiles. There’s no way to describe how big, how powerful, how massive all of this is.
The news begins in Miami, where the first major bitcoin conference since Corona was held over the weekend. Jack Mallers, developer and founder of the lightning app Strike, wandered the stage visibly moved, repeatedly almost bursting into tears of emotion, joy and excitement as he announced THE news of the conference. Probably THE biggest news of the year, THE monetary news of the decade.
Strike, the Lightning app, Jack Mallers tells us, was operating in El Salvador, a small country on the west coast of Central America, between Honduras and Guatemala. At times, he says, they were bringing in 20,000 people a day. Payments from the guest workers to their families, mostly from the U.S., are free and instantaneous. Bitcoin is working, he said. Lightning was working. Strike became the most downloaded app in the country for some time.
Then someone from the government approached him because they were interested in the payment method, and one thing led to another. Now, almost bursting with pride, he presented the president of El Salvador, Nayib Bukele, who wanted to share something with the assembled Bitcoiners via video link.
And then Nayib Bukele, the 39-year-old president of the country, appeared. He announced that before the end of the following week, he would bring a bill to Congress that would declare Bitcoin the legal tender of the country and also clear the way to exchange part of the state’s financial reserves for the cryptocurrency. The rest of what he said was lost in the thunderous applause that the enthusiastic Bitcoin scene had erupted into.
The law that makes bitcoin a means of payment
Then this morning, or rather last night, Bukele delivered what he promised: he introduced a bill to parliament. On twitter he posted an English translation.
The draft introduces that El Salvador will have the U.S. dollar as legal tender in December 2020, but that 70 percent of the population still lacks access to traditional financial services. The state has a duty to strengthen financial inclusion, he said. To that end, and to promote economic growth, Bitcoin will be legalized, promoted, and regulated as legal tender, he said.
On the follow-up page, the draft fleshes out how Bitcoin will become legal tender for an entire country: Prices can be denominated in Bitcoin, but the dollar remains the official unit of account. Every economic actor must accept Bitcoins, no matter if casino  or retailer, if the payer offers them – including the country’s tax offices and government agencies. Exchanging Bitcoin for dollars will be tax-exempt, and the state will provide an alternative, non-compulsory option to exchange merchants’ collected Bitcoins for dollars in real time. In addition, it will ensure that all residents of the country enjoy the necessary training to use Bitcoin.
So now we have not only a Bitcoin CEO, but also a Bitcoin president. While Congress was still voting on the bill, the Bitcoin President from El Salvador surprisingly hit up a Bitcoin Twitter space to explain to the scene what is specifically happening. A recording of what he said can be found on Soundcloud.
Merchants must accept bitcoins from now on
The vote is still ongoing, Bukele said, but they already have a strong majority. He will sign the law  as soon as possible, he said, and it will go into effect instantly, this Wednesday. Then – presumably after a grace period of 90 days – every merchant will have to accept bitcoins. Supermarkets, hairdressers, car dealers, hotels – everyone. “If you go to McDonalds, or wherever, they can’t say they won’t take your Bitcoin anymore. Because it’s a law, they have to accept them. Bitcoins are legal tender, just like dollars again.”
The vote is still ongoing, Bukele said, but they already have a strong majority. He said he will sign the law as soon as possible, and it will take effect immediately, this Wednesday. Then – presumably after a grace period of 90 days – every merchant will have to accept bitcoins. Supermarkets, hairdressers, car dealers, hotels – everyone. “If you go to McDonalds, or wherever, they can’t say they won’t take your Bitcoin anymore. Because it’s a law, they have to accept them. Bitcoins are legal tender, just like dollars again.”
He said the government will offer merchants a wallet, which – Bukele stressed – will not become mandatory because Bitcoin is free and the government has no plans to control it – which will therefore help merchants accept Bitcoins. “Take an ice cream vendor. He has to accept Bitcoins, but he doesn’t want to take the risk of volatility. So he can ask the government to exchange his Bitcoins for dollars, right now. He can do that on the open market, too, but the government is obligated to exchange for him if he wants. It will set up a bond for that, which will help people take the risk.”
Bukele is optimistic that the law will have a major, positive impact on El Salvador’s economy and also become a model for other countries. He is calling on Bitcoiners worldwide to come to Salvador and is enticing Bitcoin investors and startup founders with attractive tax circumstances. He is probably also motivated by the prospect of attracting the crypto scene, which is now often quite wealthy and has a lot of purchasing power.
He said he has already been approached by the U.S. government and the International Monetary Fund (IMF) about the law. On Thursday, he will have a meeting with the IMF. The law will have been passed, signed and in effect by then, so neither the U.S. government nor the Monetary Fund will be able to stop it.
Bukele is optimistic that he can convince both institutions that the law is not only not bad for their interests, but actually accommodates them: What is good for El Salvador’s economy, for example, is also good for the U.S., he says, because it curtails the flow of refugees from the Latin American country.
Laser eyes from Latin America
At least in the rest of Latin America, many politicians, especially young ones, seem to share the Bitcoin presidente’s passion. Nayib Bukele, while still at the conference, took his pro-Bitcoin stance to his Twitter profile by editing laser eyes into it.
Those laser eyes have been the not-so-secret sign for Bitcoiners on Twitter for several months now. Who brought the meme into play isn’t entirely clear; the tagline is something like “laser eyes to $100,000,” and numerous prominent Bitcoiners as well as supporters worldwide have begun to adorn their profiles with them. Bukele, however, is the first state leader to do so.
He is followed by several other politicians in his country – such as Monica Taher, government commissioner for technology, economics and foreign affairs – as well as, and this is where it gets interesting, politicians and government advisors from other Latin American countries, such as Colombia, Mexico, Brazil and Ecuador. I don’t know exactly how significant each congressman is, but here’s a parade of Latin American countries’ laser eyes, admittedly without being exhaustive:
Individual politicians with laser eyes do not, of course, mean that the respective countries will become the next Bitcoin paradises. In most, the top echelons of government are likely to be anything but open to imitating Bukele – and the circumstances will be quite different.
But it still shows how open the younger generation of Latin American politicians is to Bitcoin and other cryptocurrencies. Already, the mayor of Miami, Francis Suarez – also a bearer of laser eyes – is inviting Bitcoin politicians from Central and South America to attend a conference in his city. It would not be surprising, therefore, if other countries emulate El Salvador. An example of how to make Bitcoin legal tender now stands, and if it works technically, there really wouldn’t be much in the way.
Latin American countries would have much to gain, and little to lose. Their currencies have traditionally been weak and problematic, payments to other countries in the region slow, expensive and bureaucratic, and reliance on the dollar and U.S. banks high. All of this could be improved by the acceptance of Bitcoin.
Beyond that, El Salvador sends a powerful signal that Bitcoin will remain legal. This could encourage companies in the subcontinent to invest some of their corporate reserves in Bitcoin as well.
Deposit protection for Bitcoins
Beyond that, El Salvador sends a powerful signal that Bitcoin will remain legal. This could encourage companies in the subcontinent to also invest part of their corporate reserves in Bitcoin. Legally, the El Salvador law has a big, global impact. Caitling Long, Bitcoin-savvy fintech investor from Wyoming, explains, on Twitter of course with laser eyes, why:
Bitcoin is now officially getting “money” status. Banks can – must – now treat it like other foreign currencies, and companies can or must account for it as such under standard accounting principles. This makes it many times easier – and cheaper – for them to include Bitcoins on their balance sheets, she said. Caitlin Long sees the bill as a potential backdoor way to allow banks to transfer Bitcoins.
“Legal tender” is a tall order. In the U.S., only the dollar is legal tender; the Constitution allows states to treat gold or silver as such as well. Other means of payment , however, would require amending the Constitution.
In the EU, European and national laws define that only euro notes are legal tender, to be accepted by any economic agent. However, foreign currencies enjoy some fiscal and legal privileges over other economic assets, including that bank deposit guarantees also apply to them. Thus, by making Bitcoin legal tender in El Salvador, if Bitcoins are held by a bank such as Futurum (Bitcoin.de) or Nuri (formerly Bitwala), they could also be subject to deposit insurance protection.
As of today, cryptocurrency is to be treated as foreign currency everywhere in the world. This will significantly limit the scope for regulators and tax authorities to creatively pigeonhole Bitcoin in different and new ways, as well as arguably open up the prospect of taking legal action against it if lawmakers discriminate against Bitcoin over other foreign currencies. What the specific legal-tax consequences of this will be should be interesting to fathom.