Bitcoin Is Now Legal Tender in El Salvador—a World First. What to Know.

Bitcoin prices were hovering around $50,900 on Tuesday, down near 2% on the day, after it hit its highest levels in earlier trading since a crypto crash in May.

The country’s president, Nayib Bukele, said on Twitter Monday that El Salvador held 400 Bitcoins, after purchasing 200 more ahead of adopting it as legal tender. That brings the value of the country’s crypto treasury to more than $20 million at current prices.

El Salvadorans will be able to buy land with Bitcoin as well as pay their taxes, though tax liabilities are set in U.S. dollar terms. Bukele has said the move will also save El Salvadorans hundreds of millions of dollars in fees from money sent back to the country in U.S. dollars each year, as remittances in Bitcoin would carry lower costs.

The government is offering $30 in Bitcoin for citizens that download an official digital wallet in a bid to drive adoption of the volatile asset, which has swung from around $10,250 two years ago to highs above $64,000 in April. Lawmakers in the country approved it as legal tender in June with 62 out of a possible 84 votes.

“El Salvador will be starting a real time demonstration of Gresham’s law (bad money drives out good),” said Paul Donovan, the chief economist at UBS Global Wealth Management. “Most people seem to want to hoard dollars and get rid of Bitcoin—Gresham’s law in action.”

Gresham’s law is an economic principle that describes how, if there are two forms of money in circulation, the more valuable one—in Donovan’s example, dollars—will gradually be driven out of circulation by the less valuable one.

Write to Jack Denton at jack.dentondowjones.com