El Salvador and Cryptocurrency
El Salvador Cryptocurrency Laws
Regulation of Digital Currencies: Cryptocurrency, Bitcoins, Blockchain Technology
The Central Reserve Bank of El Salvador issued a statement on November 6, 2017, expressing its position on cryptocurrencies, which can be summarized as follows:
- At the international and national level there is a discussion about the use of cryptocurrencies.
- Cryptocurrencies are not legal tender in any jurisdiction; they, unlike the conventional currencies issued by a monetary authority, are not controlled or regulated and their price is determined by the supply and demand of their market.
- In accordance with articles 36–37 of the Organic Law of the Central Reserve Bank of El Salvador, and articles 3 and 6 of the Monetary Integration Law of El Salvador, the colón and the United States dollar are the only unrestricted legal tender that can be used for the payment of monetary obligations in the national territory.
- Any transaction that is made with virtual currency is the responsibility and risk of the person who carries it out.
- Fundraising using digital currencies is prohibited. According to article 184 of the Banking Law, all public fundraising with or without advertising, and in any form, is prohibited by those who are not authorized in accordance with the Banking Law, or other laws in force that regulate fundraising.
- According to the Central Reserve Bank, as the monetary authority, regulator of the financial system, and watchdog of payment systems, there is currently no legal or regulatory framework applicable to cryptocurrencies or their equivalents.
- The Central Reserve Bank will remain vigilant on this and other related issues.[1]
The Central Reserve Bank of El Salvador has not issued any contradicting statements since, but cryptocurrency use has recently spiked with the creation of Bitcoin Beach.[2] In the summer of 2020, an anonymous donor with a fondness for El Zonte discovered a forgotten thumb drive loaded with Bitcoin.[3] The unnamed, but fondly referenced, ‘whale’ partnered up with San-Diego native Michael Peterson to create a sustainable Bitcoin ecosystem, where the majority of residents are unbanked and the local businesses don’t meet the requirements that would enable them to accept credit cards. No legal action has been taken against Bitcoin Beach and the project is currently ongoing[4] with recent references to possible future support from newly elected President Nayib Bukele.[5]
P.S. Insights on Cryptocurrency Legal Issues
Most jurisdictions and authorities have yet to enact laws governing cryptocurrencies, meaning that, for most countries, the legality of crypto mining remains unclear.
Under the Financial Crimes Enforcement Network (FinCEN), crypto miners are considered money transmitters, so they may be subject to the laws that govern that activity. In Israel, for instance, crypto mining is treated as a business and is subject to corporate income tax. In India and elsewhere, regulatory uncertainty persists, although Canada and the United States are relatively friendly to crypto mining.
However, apart from jurisdictions that have specifically banned cryptocurrency-related activities, very few countries prohibit crypto mining.
Our Freeman Law Cryptocurrency Law Resource page provides a summary of the legal status of cryptocurrency for each country across the globe with statutory or regulatory provisions governing cryptocurrency. The globe below provides links to country-by-country summaries:
Is cryptocurrency legal in El Salvador?
Do you have questions about cryptocurrency, digital currencies, or blockchain technology?
Freeman Law can help with digital currencies, tax planning, and tax compliance. Contact us now to schedule a consultation, or call (214) 984-3410 to discuss your cryptocurrency and blockchain technology concerns.
[1] Aviso sobre el Uso de Criptomonedas y Similares, Banco Central de Reserva de El Salvador (Nov. 6, 2017).
[2] On the Coast of El Salvador, Bitcoin Is Becoming the Standard, Nasdaq, (January 13, 2020).
[3] This El Salvador Village Adopts Bitcoin As Money, Forbes, Tatian Koffman, (July 14, 2020).
[4] Homepage of BitcoinBeach, Twitter.
[5] Support of President Bukele, Twitter, embedded YouTube link, President of El Salvador talks to Tucker Carlson.
