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M&M News – El Salvador becomes first country to adopt BITCOIN as local currency

On June 8th 2021the Legislative Assembly of El Salvador passed the Bitcoin Act, making El Salvador the first country to adopt the cryptocurrency as legal tender. This Act was published in the Official Bulletin number 110, volume 431, dated June 9th 2021.

Bitcoin is part of what is known as cryptocurrency or digital currency. Its market fluctuates in accordance with the supply and demand of its users.

Before approval of this Act, Bitcoin did already circulate in El Salvador though in a very limited way, since its use was not prohibited. However, the Act makes it an obligation to accept it as a form of payment.

The Act, which contains 16 Articles, generally states the following:

  • The exchange rate shall be freely set by the market.
  • Taxes may be paid in Bitcoin.
  • All economic agents must accept Bitcoin as a form of payment, when offered as such by the purchaser of goods or services.
  • The dollar will be used as a currency of reference for accounting purposes.
  • The State shall provide alternatives for enabling Bitcoin transactions, as well as automatic and instantenaoeus conversion from Bitcoin to dollars, as specified in a future Regulation. Such conversion will be guaranteed by the State through creation of a trust in the El Salvador Development Bank (BANDESAL).
  • The Central Reserve Bank and the Financial System Superintendence shall issue rules.
  • The Act takes effect 90 days after its publication in the Official Bulletin. This will occur on September 7th, 2021.

The Salvadoran Banking Association (ABANSA) declared they “are analyzing the Act and awaiting knowledge of its technical and operational advances, through the Regulation and rules issued by the corresponding authorities”. It also stated that “for accounting purposes the dollar shall be used as currency of reference, so deposits and loans will still be counted in dollars”, according to a statement published June 11th.

The rules and regulations for applying the Act are expected to be enacted during this period prior to the Act’s entry into force.

For any questions or assistance regarding this important topic in El Salvador today don’t hesitate to contact us. 

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