11th January 2023

SAN SALVADOR, Jan 11 (Reuters) - El Salvador, which became the first country in the world to recognize bitcoin as a legal tender two years ago, approved on Wednesday a law that would regulate the issuance of other digital assets by both the state and private entities.

The bill, backed by ruling party lawmakers allied with President Nayib Bukele, aims to attract national and foreign investors while creating new financing opportunities for citizens, companies and the government.

Lawmakers in the unicameral Congress dominated by Bukele's New Ideas party passed the proposal in an overwhelming majority vote of 62 in favor and only 16 opposed.

"The purpose of this law is to establish the legal framework that grants legal certainty to transfer operations to any title of digital assets used in public issuance offers," according to the legislation.

Public offerings may be made by issuers using existing digital assets, with the opportunity to create new ones through them, the law indicates.

The law also establishes the creation of the National Commission for Digital Assets and the Bitcoin Funds Administration Agency, which will be in charge of managing, safeguarding, and investing the funds from public offerings of digital assets carried out by the government.

The provisions of the law are not applicable to digital currencies issued by central banks of any country or territory, whether so-called fiat currency issued by those banks or crypto-currencies.

It also would not apply to digital assets that by law are legal tender such as bitcoin, in addition to the video game ecosystem or Non-Fungible Tokens.

Bukele's office did not immediately respond to a request for comment asking whether the new legislation would apply to the launch of bitcoin volcano bonds that the president announced in late 2021.

Nonetheless, President Bukele shared on Twitter a message from the country's bitcoin office saying the law also paves the way for volcano bonds to be issued soon.

Reporting by Nelson Renteria; Editing by Ana Isabel Martinez; editing by Diane Craft