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El Salvador is now attempting to woo the larger cryptocurrency business in the wake of its Digital Assets Insurance Law
El Salvador’s government, which was the first in the world to accept bitcoin as legal cash, is asking Congress for permission to issue investment bonds in bitcoin. The “Digital Assets Issuance Law,” a piece of legislation intended to restrict the sale of such bonds to domestic and international investors, was received by El Salvador’s government-controlled legislature, it was revealed late on Tuesday. The law is innovative in that it creates a specific legal framework for cryptocurrencies by separating them from all other assets and financial instruments. The law makes it clear that a digital asset must make use of a distributed ledger or a comparable technology to qualify for this classification. Perhaps the most well-known distributed ledger technology to date is the blockchain.
The newly proposed measure, according to its draft, aims to establish the National Commission for Digital Assets to regulate the issuance of bitcoin-backed bonds and the Bitcoin Fund Management Agency (AAB) to supervise, protect, and invest funds collected from digital asset offerings. The law is innovative in that it creates a specific legal framework for cryptocurrencies by separating them from all other assets and financial instruments. The law makes it clear that a digital asset must make use of a distributed ledger or a comparable technology to qualify for this classification. Perhaps the most well-known distributed ledger technology to date is the blockchain. The legal framework forbids dealings with CBDCs (since they are fiat currencies subject to national financial regulations), with assets that are not eligible for trading or exchange, with assets that have restricted transactions, such as securities, and with sovereign assets covered by international law.
In June 2021, President Bukele presented the infamous Bitcoin Law to Congress. It was swiftly passed by the National Assembly with a sizable majority of the pro-government party a few hours later. If this is any indication, the new law will probably take effect in a similar hurry. The idea was put up a year after President Nayib Bukele declared he would issue so-called “volcano bonds” to collect $1 billion for his “Bitcoin City” project, which entailed constructing a town on the coast of El Salvador and using bitcoin as collateral for the bonds. Later, Bukele disclosed that the bonds bore the names of the 170 volcanoes in El Salvador, which would supply geothermal energy to fund bitcoin mining plants.
He had originally anticipated that the bonds would be prepared for release at the start of this year, but according to Finance Minister Alejandro Zelaya, the delay was caused by the country’s economic unpredictability as a result of the conflict between Russia and Ukraine. Private estimates indicate that the Bukele government has so far purchased 2,392 bitcoins for around $107 million, even though the value of the bitcoins has decreased by 63% since the recent price drop.
El Salvador adopted the cryptocurrency as legal tender in September 2021, with Bukele defending the decision as a way to bring wealth to the nation. El Salvador has significant foreign debt and heavily relies on aid from overseas, particularly the United States.
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