Cryptocurrency: the icing on the Bitcoin cake of El Salvador

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Experts and regulators highlighted concerns over cryptocurrency’s notorious volatility

El Salvador will exempt foreign investors from taxes on profits from bitcoin speculation in the country, a government adviser said on Friday, after he became the first to recognize cryptocurrency as legal tender.

“If a person has bitcoin assets and makes high profits, there will be no tax. This (is done) obviously to encourage foreign investment,” Javier Argueta, legal adviser to the AFP, told AFP. President Nayib Bukele.

“There will be no tax payable on the capital increase or on income.”

El Salvador introduced bitcoin as legal tender on Tuesday alongside the dollar, which has been the official currency for 20 years.

Experts and regulators have highlighted concerns over the cryptocurrency’s notorious volatility, its potential impact on price inflation in a country with high poverty and unemployment, and lack of user protection.

There are also fears about its potential for illegal use – especially in laundering money from criminal activities such as drug trafficking and in the financing of terrorism.

According to Argueta, the cyber “wallet” allowing Salvadorans at home and abroad to buy and spend bitcoins includes “relevant mechanisms” to ensure traceability.

“We are implementing a series of recommendations from international institutions against money laundering,” added the adviser.

He said bitcoin trading would be temporarily halted if its value ever collapsed, to minimize the impact of extreme currency fluctuations.

The government says its experience will give many Salvadorans access to banking services for the first time and hopes it will save millions of dollars in commissions on remittances sent from abroad, mostly from the United States.

Remittances represent more than a fifth of the country’s GDP.


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