El Salvador becomes the first country to adopt bitcoin as legal tender

El Salvador's legislative assembly has approved a law making bitcoin legal tender, alongside the US dollar, which the country has used as its official currency for two decades. The law is expected to take effect in about three months.

Under the law, businesses will be required to accept bitcoin as payment where they have the technical means to do so, and taxes can be paid in bitcoin. The government plans to offer a digital wallet and says it will provide mechanisms to convert payments into dollars.

The government argues the move will reduce the cost of remittances, which make up a significant part of the economy, and bring more people into the financial system. Many Salvadorans do not have a bank account. The decision has raised concerns among economists and international organisations, including:

• Price volatility for households and businesses holding bitcoin
• Risks to financial stability and consumer protection
• Anti-money laundering and transparency requirements

El Salvador is in talks with the International Monetary Fund over a financing programme, and the law may complicate those discussions.

Crypto advocates see the vote as a landmark. Other governments are likely to watch closely, but few are expected to follow soon. How the law works in practice, especially for small businesses and people with limited internet access, will determine whether it is seen as a model or a warning.