El Salvador has approved a new law that aims to create legal protection for the transfer or issuance of debt using cryptocurrencies. The law also provides a framework for the issuance of “Volcano Bonds,” which are Bitcoin-backed bonds that the nation plans to use to pay its sovereign debt and fund the construction of the proposed “Bitcoin City.” This bill, which was passed with a majority vote of 62 to 16, will become a law after being ratified by President Nayib Bukele.
Creating Legal Certainty for Digital Asset Transfers
The National Bitcoin Office of El Salvador stated that the bill will enable the country to offer unparalleled consumer protection from bad actors in the crypto space. It also establishes that the country is open for business for those who wish to build the future with Bitcoin. The bill separates cryptocurrencies from other assets and financial products, including central bank digital currencies (CBDCs), which are digital versions of fiat currencies that are regulated according to each country’s financial guidelines. It also separates Bitcoin from the rest of the crypto market, identifying it as a digital security.
El Salvador’s First Move towards Legalizing Bitcoin
This is a significant move as El Salvador became the first country in the world to recognize Bitcoin as a legal tender two years ago. The bill, which was backed by ruling party lawmakers allied with President Nayib Bukele, aims to attract national and foreign investors. It also creates new financing opportunities for citizens, companies, and the government.
Establishing the National Commission for Digital Assets
The law establishes the creation of the National Commission for Digital Assets and the Bitcoin Funds Administration Agency. These agencies will be responsible for managing, safeguarding, and investing the funds from public offerings of digital assets carried out by the government. The provisions of the law do not apply to digital currencies issued by central banks of any country or territory, whether so-called fiat currency issued by those banks or crypto-currencies.
Exclusion from the Law
It also does not apply to digital assets that by law are legal tender, such as Bitcoin, in addition to the video game ecosystem and NFTs. However, it is unclear if the new legislation would apply to the launch of Bitcoin volcano bonds that the president announced in late 2021.
President Bukele also sent a tweet from the country’s Bitcoin office revealing that the law will also pave the way for volcano bonds to be issued soon.
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