El Salvador has become the first nation in the world to institute the cryptocurrency as legal tender. If this move pays off, it could signal the end of the dollar’s hegemony.
On Tuesday night, the parliament of El Salvador made an extraordinary move, passing a law which would make the cryptocurrency bitcoin a legal tender. The Latin American nation is the first country in the world in any capacity to do so. The president of the country, Nayib Bukele, has argued that it will revolutionize its economy, as it is a nation where the vast majority of the population does not have bank accounts and many are reliant on remittance payments sent back from the United States, where a substantial expatriate population lives.
El Salvador is fiscally struggling, with the IMF lurking in the background waiting for a $1 billion repayment. Arguably, the current rules are ‘rigged’ against the development of this country, in which case, what has it got to lose by taking the unprecedented historical gamble of legalizing bitcoin as a formal currency?
But more interesting are the global political implications of this move. Will the adoption of bitcoin by a government lead to a fundamental rewrite of global currency and finance as we know it? Will it in turn undercut the role of the US dollar? Bitcoin is unique for the fact that it is politically autonomous, it is not governed by a central bank and is not an extension of global finance, for now, meaning if this decision is successful and takes off, it could, in the long term, potentially have huge ramifications for the United States by reducing the clout of the dollar.
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