Former president of the Central Reserve Bank warns that the country could become a haven for money laundering and tax evasion.
The use of bitcoin as a legal exchange currency could lead to El Salvador becoming a tax haven because “the possibility of tax evasion and money and asset laundering is opened up,” said Oscar Cabrera, former president of the Central Bank. Reserve (BCR).
“Bitcoin is an asset and therefore this could be transformed into a tax haven (…) here we are going to create a financial bubble and this bubble may sooner or later burst with negative impacts on the living conditions of the Salvadoran population” said the also president of the Foundation for the Development of Central America (Fundecen).
SEE: Government will obtain first $ 150 million in bitcoins and create a state virtual wallet
The economist Ricardo Castaneda also believes that El Salvador becoming a tax haven is one of the possible consequences, because “what happens when adopting a currency of this type is that it can lead to the country becoming a paradise for taxpayers. money laundering, this may cause other countries to put El Salvador on their black lists ”.
He noted that the law established, in article 5, that all exchanges in bitcoin will not be subject to capital gains taxes.
This means that “if a person or a company has their transactions in dollars but passes them all to bitcoin, they will simply be exempt from paying tax and from there it is an implicit way that El Salvador can become a kind of paradise” .
The Legislative Assembly of El Salvador, with an official majority, approved the Bitcoin Law early Wednesday, which will allow the legal course of said cryptocurrency, making the country the first in the world to recognize this cryptoactive as a legal currency exchange.
Cabrera regretted that the approval of the initiative was done “in such a short time” because “on Saturday the president (Nayib Bukele) announced that it was intended to incorporate bitcoin as legal tender and three days later its circulation is already approved.”
He pointed out that there is no technical-economic study on the negative or positive impact, or the consequences that the use of said cryptoactive will bring to the population.
SEE: Pro-government deputies approve Bitcoin as legal tender, what does it consist of?
“All central banks in the world recognize the high risk of the use of crypto assets for the stability of the financial system (….) No one validates the legal or illegal origin of transactions with bitcoin, nor is their origin investigated, so it is deduced a high probability of committing crimes with this system ”, explained the expert in a television interview.
The president of Fundecen sees it necessary for the BCR and the Superintendency of the Financial System “to carefully explain to the population, especially ordinary citizens, what this new system consists of and what the benefits or consequences are.”
“At the moment, we have no further information. What is concrete is that this is a reality, that it is a legal tender, it is mandatory and all economic agents will have to use and receive bitcoin, “he added.
The Bitcoin Law, which only establishes the legal course of bitcoin and not of other cryptocurrencies or the underlying projects, was approved with the votes of 62 deputies of the 84 in Parliament and will enter into force 90 days after its publication in the Journal Official.
For Ricardo Castaneda, the law “should not enter into force in 90 days because it takes more time to explain to the public how it would work, what the benefits would be and what implications it would have.”
Additionally, said the economist, “I think that before it comes into effect, there should be technical studies that really allow us to verify that the benefits are going to outweigh the costs.”
“Unfortunately since there has not been a clear explanation or a document that explains the application form, it is not possible to delve much about the subject,” said Castaneda, from the Central American Institute for Fiscal Studies (Icefi), in a conversation with Efe.
The regulation, which was announced by President Nayib Bukele through Twitter, was introduced in the last hours of Tuesday to the Parliament session without further legislative discussion.
WATCH: Bandesal will be the “exchange house” to make Bitcoins effective, according to the new law
The law establishes that the exchange between bitcoin and the dollar will be established “freely by the market” and will not be subject to capital gains taxes like any legal tender.
Bitcoin users primarily use it as a long-term haven of value while waiting for its price to rise over time.
The legislation also indicates that every economic agent must accept bitcoin as a form of payment “when it is offered to him by whoever acquires a good or service” and that the Executive body will create the institutional structure necessary for the circulation of the cryptocurrency, according to what is established in the law.