Many countries and their central banks and governments have been slow to take to the popular cryptocurrency Bitcoin (BTC -2.07%), but not El Salvador.
The Central American country's Congress just voted to make Bitcoin legal tender, meaning that it must be accepted in the country when offered to repay a debt. El Salvador is the first country to take such measures.
The passing of the bill does not remove the U.S. dollar as legal tender. El Salvador's lead trade official said the law just allows people to choose to use Bitcoin instead of the dollar if they want. He also said that Bitcoin would be tied to the dollar exchange rate.
The wording of the law says that its purpose "is to regulate bitcoin as unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private natural or legal persons require carrying out."
Once the law is in place, citizens will be able to pay taxes in Bitcoin, and Bitcoin exchanges will not be subject to capital gains taxes.
Those expressing concern with the move argue that Bitcoin is simply too volatile to be treated like a currency. According to the law, the market will set the exchange rate between Bitcoin and the U.S dollar.
In addition, analysts say the move could complicate El Salvador's relationship with the International Monetary Fund, according to Reuters.
However, Bitcoin has always been pushed as a way to give more people access to the financial system because participants don't need bank accounts, just a digital wallet, and El Salvador has a large unbanked population.