On September 7th, El Salvador's Ley Bitcoin ("Bitcoin Law") officially goes into effect, enacting the law passed in Congress on June 9th in the Central American country.
Leading up to that day, the Salvadoran central bank, Banco Central de Reserva (BCR), this week published draft guidelines for banks under the new law.
The documents, titled "Guidelines for the Authorization and Operation of Digital Wallet Platforms for Bitcoin and Dollars" and "Technical Standards for the Facilitation of the Bitcoin Law's Application," outline the rules for banks and other financial institutions to provide financial services involving Bitcoin to their customers.
According to the drafts, banks will need to apply for authorization from the central bank to handle Bitcoin-related service offerings; applications need to include, among other things, a description of the planned products or services, market studies, outlines of risks and how the applicants seek to address them, including anti-money laundering and cyber security measures, cost overviews, and a description of how the applying institutions plan to educate their customers on the planned products or services.
Payment service providers will be required to ensure bitcoin-to-dollar convertibility and vice versa, as well as implement sufficient KYC processes.
Further, service providers will be required to inform their customers about Bitcoin's volatility, as well as about the irreversibility of transactions on the network and the possibility of permanent loss of funds if users lose access to their private keys.
El Salvador is the first country in the world to declare Bitcoin legal tender; rather than replacing the U.S. dollar, previously the country's sole legal tender, Bitcoin is added as a second legal tender, and merchants will be required to accept bitcoin if offered. Salvadoran president Nayib Bukele in July announced that the government would provide a mobile wallet that would allow its users to instantly convert bitcoin to dollars upon receipt — a feature that could prove useful for those looking to minimize their exposure to Bitcoin's short-term price fluctuation. The government has provided an incentive of a $30 bonus in bitcoin for those who download the wallet once available.