The law will take effect in September.
Some Bitcoin fans have leapt on this as a step towardsmuch broader acceptance.
But the changes in Bitcoins market value since Bukele announced his plan gives crypto-sceptics reason for doubt.
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Over the past month it has fallen from more than US$58,000.
This isnt the throw in of price volatility any government generally wants to see in a currency.
What does legal tender mean?
Before we get to that, lets clarify what making Bitcoin legal tender means.
Using Bitcoin is already legal in El Salvador, as it is in most countries.
Making bitcoins legal tender mean a payee will have to accept them.
So El Salvador has less to lose than other nations in adopting a second currency as legal tender.
There is no controversy about losing sovereignty and monetary policy autonomy.
Even that is complicated.
How, and by whom, will the amount of bitcoins necessary to pay a debt be determined?
The difference of even a few days could be significant.
If the expectation is the price is going to fall, why would you want to accept it?
For most transactions, using US dollars will still make the most sense.
So making Bitcoin legal tender could help destabilise El Salvadors economy.
This argument which seems to be the only analysis Bukele has made public seems very confused.
In very few cases do people buy bitcoins to invest in other things.
Bitcoins are their investment.
Neither major funds nor average punters holding bitcoins are likely to want to start investing in El Salvador.
In 2020 these remittances totalled US$5.9 billion, or23% of El Salvadors GDP.
How many vendors, street hawkers or farmers are equipped to handle cryptocurrency transactions?
US dollars will more than likely remain the default currency.
The benefits of making Bitcoin legal tender are far from clear.
El Salvador is already facing higher interest rates as international investors areworried about the move.
There are concerns wider use of Bitcoin will facilitate the black economy and make tax avoidance easier.
So this is agreat experiment.
For the sake of El Salvadors people, lets hope it is successful.
