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27 July 2021

Coercion and coexistence: How El Salvador’s Bitcoin Law may change global finance

Coercion and coexistence: How El Salvador’s Bitcoin Law may change global finance

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After winning approval by a supermajority of its congress, El Salvador enacted its Bitcoin Law and became the first country in the world to adopt Bitcoin as legal tender.The Bitcoin Law passed mere daysafter El Salvador’s president, Nayib Bukele, first announced his plans to introduce it.

Indeed, the day after El Salvador passed the Bitcoin Law, the IMF claimed that the legislation raised “a number of macroeconomic, financial and legal issues that require careful analysis.” The World Bank, which frequently cooperates with the IMF, joined the fray and proclaimed that it hadrejected El Salvador’s request for helpwith implementing its Bitcoin Law because of “environmental and transparency shortcomings.” While these proclamations from powerful Washington, DC-based multinational organizations embody the fight that Long predicted in her tweets, the Bitcoin Law’s forward momentum may hasten reform in how these organizations and laws in the United States address cryptocurrency.

While El Salvador already has a partnership with the private digital wallet company Strike to build the requisite infrastructure for the Bitcoin Law, the World Bank flatly rejected the country’s request for assistance.

Thus, the World Bank’s articles would require it to accept a note issued by El Salvador that is backed by its Bitcoin reserves.

Consequently, if Bitcoin is deemed a local currency of El Salvador, the World Bank could be accumulating Bitcoin or paying El Salvador Bitcoin gains depending on cryptocurrency’s price action.

For example, Dante Mossi, executive president of the Central American Bank for Economic Integration (CABEI), stated that the bank will give El Salvador technical assistance in implementing the Bitcoin Law.

Now that Bitcoin is legal tender in El Salvador, the IRS may be forced to reexamine the principles it articulated for treating Bitcoin as property for tax purposes.

taxpayers with family or business in El Salvador and other countries that adopt Bitcoin as legal tender will need better clarity regarding their tax obligations. .

With El Salvador’s adoption of Bitcoin as legal tender, some U.S.

Thus, absent tax reform, it appears that all transactions in Bitcoin will continue to be taxable events.

Bitcoin is now recognized as legal tender by a sovereign nation but is struggling to coexist with powerful financial organizations and laws that were designed for an economy that predated blockchain technology

It appears that El Salvador is moving forward with the implementation of its Bitcoin Law despite skepticism and resistance

If El Salvador implements the Bitcoin Law and other nations follow its example, Bitcoin may change the organizations that are resisting its adoption and hasten needed legal and financial reforms for handling cryptocurrencies

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