While making my normal rounds on social media, I saw someone raise an interesting concern on what El Salvador adopting Bitcoin as a legal tender would mean for other countries, would this mean the government would treat Bitcoin as a foreign currency?
If you’re not savvy to the news, El Salvador may become the world’s first sovereign nation to adopt bitcoin as legal tender alongside the United States dollar.
The country in Central America is partnering with digital-wallet firm Strike to create the necessary infrastructure. Reuters report that the country’s president, Nayib Bukele, says he is looking to introduce legislation that will recognize the cryptocurrency the same way as the US dollar.
“Next week I will send to Congress a bill that will make bitcoin a legal tender,” Bukele said at the Bitcoin 2021 Conference on Saturday.
12/ What's the significance? Well, it means #bitcoin would gain special status in banking systems globally. Banks would likely treat it as any other foreign currency. #Bitcoin *MAY* get back-door favorable treatment under bank capital requirements (Basel 3, etc).
— Caitlin Long 🔑 (@CaitlinLong_) June 6, 2021
What this means for Kenya
In Kenya “foreign currency” means banknotes or coins which are or have at any time been legal tender in any territory outside Kenya.
If El Salvador making Bitcoin a legal tender means Btc is now defined as ‘Money’? Then that gives other nations the leeway to treat and impose foreign currency regulations on the cryptocurrency.
Will this prompt Kenya to regulate Bitcoin as a foreign currency? Logically it should.
In my opinion, the implementation of this proposal would have many secondary effects, but I doubt it’d have that big of an impact unless the people of El Salvador use Bitcoin heavily as the medium of exchange in the county, if not making it the dominant one in order for it to be termed and treated as foreign currency. Well that and Russia adopting the currency as well.
This has never been done before and there are no definitive answers on what follows next. If Kenya does, however, recognize Bitcoin as foreign currency, this would mean regulations and tax rates that would be applied to buying and selling Bitcoin would automatically be the standard income tax rates “the bulk of income taxed at 30pc.” Mihr Thakar writes on Twitter.
But there’s also the chances of the Bill dying a natural death and El Salvador not making Bitcoin a legal tender, for instance, in March 2017, Japan passed a bill to revise portions of the Banking Act. Section 3 of the bill included wording on virtual currency, tentatively called the “Virtual Currency Act.”
Many News sources stated that Bitcoin had now been declared as a legal tender or payment method in Japan, effective from April 1st, 2017 but Reuters reported that Japan had only defined Bitcoin and other virtual currency as a form of payment method, not a legally recognized currency.
It will be very interesting to watch the foreign policy moves if Bitcoin is made legal tender in El Salavdor