(CNN) — El Salvador could become the first country to adopt bitcoin as a legal tender, Salvadorian President Nayib Bukele announced in a video recording shown during the Bitcoin 2021 conference held in Miami.
Bukele, a 39-year-old, right-wing populist who rose to power in 2019, has a strong majority of 56 out of 84 seats since a landslide victory in legislative elections last March. That means passage of the bill is likely.
Bukele said El Salvador partnered with digital finance company Strike to establish the logistics of the decision.
“Over 70% of the active population of El Salvador doesn’t have a bank account. They’re not in the financial system,” Strike CEO Jack Mallers said. “They asked me to help write a plan and that they viewed bitcoin as a world-class currency and that we needed to put together a bitcoin plan to help these people.”
El Salvador currently uses the United States Dollar as its official currency.
The future of digital currencies
Although central banks around the world have reacted to bitcoin with fascination, they have been hesitant to embrace cryptocurrencies because of their extreme volatility. Bitcoin, for example, crashed by more than half its value earlier this year after rocketing to a record high above $60,000. Other, more thinly traded cryptocurrencies are even more volatile, trading up and down like seesaws — often based on speculation or meme tweets from Tesla CEO Elon Musk.
However, crypto’s rise in popularity has led the Federal Reserve to look hard at the old-fashioned dollar’s limitations — particularly around payments and money transfers that can take days to accomplish. Bitcoin transactions happen almost instantaneously.
Cryptocurrencies also don’t require a bank account. Instead, they’re held in digital wallets. That could help people in poorer communities — such as many in El Salvador but also in minority communities in the United States — gain increased access to their finances.
Lael Brainard, a member of the Federal Reserve Board of Governors, laid out a case last month for a secure, central bank-backed digital currency that could create a more efficient payment system and expand financial services to Americans who have been underserved by traditional banks.
Federal Reserve Chairman Jerome Powell in May announced the central bank would publish a paper this summer laying out the board’s thinking on the benefits and risks associated with a digital US dollar.
Although cryptocurrencies like bitcoin are digital, a Central Bank Digital Currency would be fundamentally different from current cryptos because it would still be controlled by a central bank rather than a decentralized computer network.