El Salvador becomes first country in the world to introduce bitcoin as legal tender

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LONDON, June 10 - El Salvador has become the first country in the world to adopt bitcoin as a legal tender, with President Nayib Bukele demonstrating its power for its potential to help Salvadorans living abroad send remittances back home.

Here is what the move means for bitcoin - and emerging markets such as El Salvador :

El Salvador's new law means bitcoin will have the same footing with the dollar, which became its official currency 20 years ago.

Making bitcoin legal tender means shops and businesses must accept it for goods and services, and they can choose to express prices in currency.

Taxes can also be paid by bitcoin, though its use will be optional.

It's too soon to tell.

The value of Bitcoin has fluctuated almost wildly throughout its 12 year life, with regularly double digit price movements rendering it unpractical for commerce.

It remains little used for buying goods and services across the world, despite a growing number of major companies accepting it as payment.

El Salvador said the bitcoin-dollar exchange rate will be set by markets. Yet, no detail has been given on how this will work in practice and whether and how vendors and businesses will reflect pricing in real-time or maybe through other mechanisms.

The government is registering currency at the time of transaction through a 150 million trust created at the country's development bank.

Bitcoin was designed as a currency, yet many investors consider it as an asset more similar to gold than a replacement for Dollars, euros or yen World financial regulators and law enforcement worldwide are debating the status of crypto currencies and how they should be regulated.

The jury is still out on whether the introduction of bitcoin with El Salvador will see it become more a transaction mechanism or take over the function of a currency in its own right.

In theory, bitcoin offers a direct and budgetary way to transborder money without relying on traditional financial institutions such as banks and remittance companies.

Backers say it could catch on in the emerging markets especially, where people lack access to expensive financial services and have to pay traditional fees for sending and receiving money.

However, converting bitcoin to and from public currencies in such economies tends to rely on informal brokers, requires know-how and is fraught with the risk of scams and price fluctuations.

Analysts say it is too soon to tell whether El Salvador's move would start a wider trend of bitcoin adoption?

El Salvador's experiment will provide the first opportunity for analysts to measure the heuristic effects of cryptocurrency on economy.

Some warn that increasing user account usage will reduce the effectiveness of monetary policy.

Although El Salvador is already using the greenback as its legal tender, other emerging economies who could start to find that cryptocurrency use can amplify this, dampening the ability of central banks to act as lender of final resort.

Inflation is also in focus.

Like many other digital currency currencies, Bitcoin has a limited supply designed to mitigate inflationary effects. But experts predict any increasing business case for cryptocurrency will spur the creation of new ones, which means overall supply is not restricted and potentially inflationary. What is the best way to be self motivated?

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