* Bitcoin legal tender bill passes El Salvador Congress
* Will become legal tender in 90 days
* Prices can be expressed, taxes paid in bitcoin
* Bukele to meet IMF Thursday
* Proposes bitcoin mining using volcanic energy
(Adds reaction of residents, historic reference to negative
impact of dollarization)
SAN SALVADOR, June 9 (Reuters) - El Salvador became the
first country in the world to adopt bitcoin as legal tender
after Congress on Wednesday approved President Nayib Bukele's
proposal to embrace the cryptocurrency, a move that delighted
the currency's supporters.
With 62 out of 84 possible votes, lawmakers voted in favor
of the move to create a law to adopt bitcoin, despite concern
about the potential impact on El Salvador's program with the
International Monetary Fund.
Bukele has touted the use of bitcoin for its potential to
help Salvadorans living abroad to send remittances back home,
while saying the U.S. dollar will also continue as legal tender.
In practice, El Salvador does not have its own currency.
"It will bring financial inclusion, investment, tourism,
innovation and economic development for our country," Bukele
said in a tweet shortly before the vote in Congress, which is
controlled by his party and allies.
In an idea he appeared to have developed overnight, Bukele
later said he had instructed state-owned geothermal electric
firm LaGeo to develop a plan to offer bitcoin mining facilities
using renewable energy from the country's volcanoes.
He said the idea was to build a bitcoin mining hub around
the country's geothermal potential. He also said that El
Salvador would offer citizenship to people who showed evidence
they had invested in at least three bitcoins.
The use of bitcoin will be optional for individuals and
would not bring risks to users, Bukele said, with the government
guaranteeing convertibility to dollars at the time of
transaction through a $150 million trust created at the
country's development bank BANDESAL.
Under the law, bitcoin must be accepted by firms when
offered as payment for goods and services. Tax contributions can
also be paid in the cryptocurrency.
"If you go to a McDonald's or whatever, they cannot say
we're not going to take your bitcoin, they have to take it by
law because it's a legal tender," Bukele said in an online
conversation he held with crypto-currency industry figures in
parallel to the debate in Congress.
Its use as legal tender will begin in 90 days, with the
bitcoin-dollar exchange rate set by the market. Bukele said the
government and Central Bank did not currently hold any bitcoin.
In the capital, San Salvador, reactions were mixed, with
some excited that the new currency could increase prosperity and
financial options. Others were skeptical.
"How am I going to agree with this? I haven't seen it even
in photos. I know nothing about it, you need to understand your
currency," said Estela Gavidia, clutching shopping bags and
recalling the loss of purchasing power many poor people suffered
when the dollar was adopted in 2001.
Cryptocurrency supporters hailed the move as legitimising
the emerging asset, but its impact on bitcoin regulation,
taxation or adoption in other countries remains to be seen.
There were no immediate signs that other countries would
follow El Salvador's embrace of bitcoin.
"Whether this becomes the first in what becomes a trend and
then snowballs, or whether this will be a blip, we will only
know through history," said Brandon Thomas, partner at advisory
firm Grayline Group.
Analysts have also said the move could complicate talks with
the IMF, where El Salvador seeks a more than $1 billion program.
Bukele said he will meet with the IMF on Thursday to discuss
the bitcoin law, among other issues. He said in setting up the
meeting he had tried to explain to them that the shift was "not
going to change our macroeconomics."
Bitcoin enjoyed its best day in two weeks, rising
as much as 6% to $35,200.
"The market will now be focused on adoption through El
Salvador and whether other nations follow," said Richard Galvin
of crypto fund Digital Asset Capital Management. "This could be
a key catalyst for bitcoin over the next two to three years."
It was not immediately clear how long Bukele had been
working on the bitcoin plan, but he said on Wednesday he was
inspired by a project called Bitcoin Beach that introduced the
cryptocurrency in an El Salvador beach town last year.
He worked on the idea with Jack Mallers, CEO of Strike, a
digital wallet that uses the Lightning Network to enable small
payments in Bitcoin.
Bukele has also pointed out a tweet of his from 2017, before
he was a presidential candidate, in which he suggested using
Emerging economies - where bank penetration is much lower
than in developed countries and reliance on money transfers from
abroad much higher - have quickly warmed to cryptocurrencies.
Outside the United States, countries with the highest crypto
production and trading volumes are all developing nations,
according to BofA, including China, Colombia and India.
Bukele says some 70% of people in El Salvador lack access to
traditional financial services.
But the use of digital currencies in general can also pose
risks for dollarized economies, analysts say.
"The root cause of dollarization is high local inflation,
which could worsen, too, if digital currencies prove
inflationary," said David Hauner at BofA.
El Salvador relies heavily on money sent back from workers
abroad. World Bank data showed remittances to the country made
up nearly $6 billion or around a fifth of GDP in 2019, one of
the highest ratios in the world.
The cryptocurrency offers, in theory, a quick and cheap way
to send money across borders without relying on remittance firms
typically used for such transactions. It is not clear what
proportion of remittances sent to El Salvador are in bitcoin.
Converting local currencies to and from bitcoin often relies
on informal brokers, while trading often demands technical
El Salvador will promote training and mechanisms to allow
access to bitcoin transactions, the law said.
Financial regulators and policymakers warn bitcoin
facilitates money laundering and other illicit uses.
Bukele brushed off the fears, saying criminals already use
U.S. dollars and other assets to launder money.
"The problem is not the dollar, it is the criminals," he
(Reporting by Nelson Renteria in San Salvador and Tom Wilson in
London; Writing by Daina Beth Solomon and Tom Wilson; Editing by
Toby Chopra, Kirsten Donovan and Gerry Doyle)