Many Countries Might Follow El Salvador’s Suit to Make Bitcoin Legal Tender
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Many Countries Might Follow El Salvador’s Suit to Make Bitcoin Legal Tender

June 13, 2021      Meghna Das Chowdhury

El Salvador, a small Central American coastal country, became the first in the world to legalize digital currency Bitcoin (BTC) on June 9, 2021. The measure was supported by a majority vote of 62 out of 84 members of El Salvador’s parliament. It mainly implies that pricing can now be shown in Bitcoin and tax contributions can now be paid using digital currency. El Salvador lacks its own monetary policy and hence no local currency to safeguard, which is the driving force for the decision. The country was officially ‘dollarized’ in 2001 and now follows the US Federal Reserve’s monetary policies.

However, the shift in El Salvador is partly inspired by the Federal Reserve’s loose and expansionary policies, which is crucial to monetary thought. While banks in the United States acquired liquidity as a result of the stimulus, El Salvador did not, and instead lost purchasing power. Bitcoin proponents applauded El Salvador’s actions, which they regard as a viable alternative to fiat currencies. While this sets several precedents for the worldwide debate on cryptocurrencies, we look at what this means for other countries, particularly India.

Countries Where BTC Adoption Is Being Considered

Politicians from various nations have begun asking for the adoption of Bitcoin as legal money, following the lead of El Salvador. Inflation, dependency on the US dollar, and a mechanism to promote digital entrepreneurship all are driving interest in Bitcoin. 

“In the short term, this will generate jobs and help provide financial inclusion to thousands outside the formal economy,” said El Salvador’s President Nayib Bukele.

Mexico

Eduardo Murat Hinojosa, a senator in Mexico’s federal government, has said that he will present a proposal to parliamentarians aimed at promoting cryptocurrency adoption in the country. Hinojosa updated his profile photo to a senator speaking into a microphone with the trademark “laser eyes” in a tweet, signaling support for cryptocurrency. In Mexico’s lower house, the legislator claimed he would be “supporting and proposing a legal framework for cryptocurrency,” explicitly Bitcoin (BTC).

Hinojosa isn’t the only Mexican legislator who has expressed interest in cryptocurrency. Senator Indira Kempis Martnez of Nuevo León has similarly changed her profile picture to portray laser eyes, with Hinojosa referring to her as a supporter of the cause. 

“We are going to lead the shift to crypto and fintech in Mexico.”

Although many private investors in Mexico support Bitcoin, officials in the country stated last year that cartels were boosting their use of cryptocurrency to launder funds. At the time, the head of the Mexican Attorney General’s Cyber Investigations Unit stated that the country’s law enforcement lacked the resources needed to combat money laundering involving cryptocurrency.

Iran

Hassan Rouhani, the Iranian president, has instructed his government to begin developing a framework to regulate cryptocurrencies such as Bitcoin. He believes that good communication about the laws and procedures would help deter dishonest crypto firms, which have enjoyed a free run thus far. This comes after the country issued a four-month blanket ban on bitcoin mining earlier this year owing to a power crisis.

He also cautioned retail investors to avoid “unprofessional” enterprises that are currently operating in the field. Rouhani told the Economic Coordination Board that supervision is essential for the widespread acceptance of cryptocurrency.

Because trading in the US dollar is limited, the country is essentially cut off from the global banking system. The dollar is commonly recognized as the de facto international currency with the greatest purchasing power. In the face of such adversity and sanctions, Iran has enthusiastically welcomed the cryptocurrency revolution.

Brazil

Fabio Ostermann, a State Deputy for the Rio Grande do Sul in Brazil, got in on Twitter with laser eyes and shared a post from the prominent Bitcoin account, Documenting Bitcoin. Ostermann had added laser eyes signifying Bitcoin support, according to the Documenting Bitcoin site. 

Gilson Marques, another Brazilian Federal Deputy, updated his profile photo with the hashtags #Bitcoin and #ToTheMoon. Marques also claimed to be the first Brazilian deputy to remark in the Chamber of Deputies, “tax is theft.”

So Where Does India Stand Here?

El Salvador’s move had a positive effect on the mind of India’s lawmakers. Looks like the government is finally understanding the potential good crypto can bring to the economy of the country. Top industry sources told an Indian media outlet that the government has reversed its previous negative position against virtual currencies and will most likely categorize Bitcoin as an asset class in India soon. According to sources, the Securities and Exchange Board of India (SEBI) would oversee laws for the cryptocurrency sector following Bitcoin’s categorization as an asset class. 

The Indian crypto business is also in discussions with the finance ministry about the creation of a new set of laws, according to industry sources, and an expert group at the ministry is looking into the topic. A Cryptocurrency Regulation law is expected to be introduced in Parliament during the Monsoon session, according to the report.

The decision comes just days after the Reserve Bank of India (RBI) urged banks in a circular to stop avoiding deals using virtual tokens, citing an earlier 2018 circular that was invalidated by the Supreme Court. The central bank has instructed banks to conduct necessary customer due diligence following regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering (AML), Combating Terrorist Financing (CFT), and regulated entities’ obligations under the Prevention of Money Laundering Act (PMLA), 2002. Ketan Surana, Director and chief financial officer, Coinsbit, and Member, Internet and Mobile Association of India said:

“We can definitely say that the new committee which is working on cryptocurrencies is very optimistic on cryptocurrency regulation and legislation… A new draft proposal will soon be in the Cabinet, which will look into the overall scenario and take the best step forward. We are very hopeful that the government will embrace cryptocurrencies and blockchain technologies.”

According to a white paper published by Indiatech.org, the acceptance of Bitcoin as an alternative asset class in India is increasingly likely. The study also suggested taxing cryptocurrency assets by subjecting them to the Income Tax Act’s capital gains tax. Having said that, crypto traders in India can finally breathe freely as they look up to their government for a positive move. 

Cryptocurrency Prices Jumps After El Salvador’s BTC Adaptation

Bitcoin soared on Thursday, a day after El Salvador passed legislation making bitcoin legal cash. The cryptocurrency increased by 6% to be than $37,000. Bitcoin is still a long way from its all-time high of $64,829.14 set in April. Other cryptocurrencies were also boosted, with ether and XRP trading higher. Moreover, the NFT market trading volume tripled despite the crypto crash. And the tokens have continued to surge after the news of El Salvador. 

On Thursday, all the main cryptocurrencies — Ether, Binance, Dogecoin, Cardano, and XRP — increased. On Thursday, Ether, the cryptocurrency tied to the Ethereum blockchain network, gained ground. The second most popular cryptocurrency was trading 5.27% higher at $2,566.40. While Dogecoin, a parody cryptocurrency, climbed 7.59%, Binance Coin rose over 10%. This is just the beginning, as the prices are only expected to surge from here. The bulls are expected to hit the market soon, with countries finally looking up to adopting Bitcoin. 

IMF’s Stand on El Salvador’s Decision

On Thursday, an IMF spokesperson cautioned of the danger of adopting bitcoin for day-to-day transactions after El Salvador, which is negotiating more financing from the crisis lender, allowed its usage. Later Thursday, an IMF team was supposed to meet with El Salvador’s President, Nayib Bukele, as the international institution considers a new aid package for the country as it recovers from the Covid-19 pandemic.

“Adoption of bitcoin as legal tender raises several macroeconomic, financial, and legal issues that require very careful analysis. What we have said in the past, in general, is that crypto-assets can pose significant risks, and effective regulatory measures are very important when dealing with them,” spokesman Gerry Rice told reporters.

The Bottom Line

El Salvador’s general adoption of Bitcoin appears to be motivated less by its usage as a currency and much more by the image and investment boost it could provide to the country in terms of innovation. In a Twitter appearance, President Bukele stated several times that this action will help to attract “technology, talent, and fresh ideas” to the country. The President himself sent out a tweet to this effect, asking crypto entrepreneurs to come to the United States. While discussions in India about cryptocurrency’s monetary and financial regulations continue, it is critical that incentives for India’s developers working on major advancements in the sector be prioritized. 

Therefore, El Salvador is setting a good example. And as other countries are finally opening up to Bitcoin and other cryptocurrencies, it is not only a boost for the crypto space, but also digital currencies are going to pull up the economy of the states. 

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Meghna Das Chowdhury
Meghna Das Chowdhury

Meghna is a graduate of the Indian Institute of Journalism & New Media specializing in Print Journalism. She is currently working as a content writer for Agio Support Solutions Pvt. Ltd. She aims to provide quality content and strategy in the field of cryptocurrency and work with digital marketing platforms to deliver brand-specific strategies.