Print Friendly, PDF & Email

Legalisation of Bitcoin in El Salvador

Topics Covered: Awareness in the fields of IT, Space, Computers, robotics, nano-technology, bio-technology and issues relating to intellectual property rights.

Legalisation of Bitcoin in El Salvador:


El Salvador, a small coastal country in Central America, has become the first in the world to make Bitcoin legal.

Rationale behind this move:

  1. El Salvador depends heavily on remittances sent by Salvadorians from abroad (making up more than 20% of the GDP). However, much of this is lost to intermediaries. By using Bitcoin, the amount received by more than a million low income families will increase in the equivalent of billions of dollars every year.
  2. Besides, Bitcoin will help increase financial inclusion in El Salvador, where 70% of the population does not have a bank account and relies on the informal economy.

Please note:

El Salvador has not had its own monetary policy since 2001, when a right-wing government made the US dollar the official currency. Along with Ecuador and Panama, El Salvador is currently among three nations in Latin America to have a ‘dollarized economy.

Criticisms of the move:

Legalizing bitcoin in the absence of a central regulating authority will have potential for fraud and money laundering, high energy costs and extreme volatility.

Is there a move to adopt virtual currencies globally?

In many parts of the world that are plagued by economic uncertainties, the use of cryptocurrencies is fast gathering pace, such as in Cuba, Venezuela and Mexico, where many are preferring virtual tokens that are decentralised and unregulated.

How such legalisation may not work well for India?

El Salvador has no monetary policy of its own and hence, no local currency to protect. It runs on the monetary policy of the US Federal Reserve. Therefore, any changes in Federal Reserve policies will definitely affect the Country. Hence, it is looking at such alternatives.

  • But, this is not the case with India. India has its own currency and a central bank. Therefore, coexistence of bitcoin and rupee side by side becomes difficult.

India’s response to Cryptocurrencies:

In India, the government has floated The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which will prohibit all private cryptocurrencies and lay down the regulatory framework for the launch of an “official digital currency”.

  • It was to be introduced in Parliament’s Budget session earlier this year, but was held up as the government continues discussions with stakeholders.


Overall takeaway for India from the El Salvador case- This might become an example of how far countries are willing to go to attract innovators and entrepreneurs working on this emerging sector. This is the wealth that India has in spades and has barely protected with policy.

While deliberations continue in India on the monetary and financial regulations around cryptocurrency, it is important that attention be paid to incentives for India’s developers working on key innovations in the space.


Insta Curious: 

  1. Do you know what Bitcoin Maximalism is? Read Here
  2. Do you know what IOTA Tangle is? Read here (briefly)


Prelims Link:

  1. Various cryptocurrencies.
  2. Cryptocurrencies launched by various countries.
  3. What is Blockchain technology?

Mains Link:

What are Cryptocurrencies? Why there is a need for regulation? Discuss.

Sources: Indian Express.