So what does this mean for btc? In the grand scheme of things probably not a huge amount but is a step forward in it’s legitimacy. What it does do is pose some really interesting questions.
Firstly, why is El Salvador choosing to add btc to it’s current legal tender, the almighty USD. Presumably they see risk of devaluation of the USD that is beyond their control resulting in the destruction of the wealth of their country. At this point it seems they are exchanging that for some pretty extreme volatility. Presumably one of the reasons the USD was adopted instead of a unique local currency is because of the stability provided.
Secondly, how are they going to adopt it. Is the intention to use btc as the security under an electronic payment system but maintain nominal pricing in USD and use them in tandem. This seems like the least disruptive option but opens up some interesting issues regarding exchange rate and the potential for peoples savings to fluctuate wildly in both directions along with the value of btc if large portions of it are stored in that system. The alternative of switching to pricing directly in btc would leave peoples savings untouched but would see prices of imports and exports fluctuate wildly instead, so is probably not significantly better from that point of view.
It also raises some further questions about the implementation. Whether the intention is to price in btc or USD the system will be a transaction system abstracted away from the underlying btc, much the same as EFTPOS abstracts AUD here, and the classic greenback did for gold back when it was still linked. And much like those it will become blindingly obvious that the system will still be perfectly capable of operating as a transactional currency if the underlying security was to be removed from it. Presumably another of the benefits of adopting the USD was it removed the ability for the local government to fiddle with the money supply, however the change to this system may provide potential for that to become possible again.
Ultimately I don’t know what is going to happen but it will be interesting to see the practical implementation when it is complete.