El Salvador’s Bitcoin Experiment: From Bold Innovation to Policy Reversal

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In 2021, El Salvador made history as the first country to adopt Bitcoin as legal tender under President Nayib Bukele. The move was designed to position the nation as a leader in financial innovation, attract foreign investment, and provide banking access to the unbanked. However, while the world watched in fascination, the policy sparked both praise and skepticism, with critics warning of Bitcoin’s volatility and potential economic risks.  

By early 2025, the Salvadoran government reversed course. The Legislative Assembly, controlled by Bukele’s New Ideas party, amended the Bitcoin Law, stripping Bitcoin of its legal tender status and making its use optional for businesses and individuals. This decision was largely influenced by a $1.4 billion loan agreement with the International Monetary Fund (IMF), which had long voiced concerns over Bitcoin’s instability and its implications for financial stability. As part of the deal, the IMF required El Salvador to scale back its Bitcoin exposure and ensure that businesses were no longer obligated to accept it as payment.  

Despite significant government investment in Bitcoin adoption—including the rollout of the Chivo Wallet and incentives for businesses—usage remained low. By 2024, only 8.1% of the population actively used Chivo, and the economic benefits that Bukele had promised failed to materialize. Reports indicated rising poverty levels, while critics cited a lack of transparency, mismanagement of Bitcoin reserves, and growing concerns over corruption.  

Facing economic challenges and mounting international pressure, the government opted to revise its stance, officially removing Bitcoin’s status as an official currency while allowing individuals to continue using it voluntarily. This marked a significant shift in El Salvador’s economic policy, reflecting the complexities of integrating cryptocurrency into a national financial system.  

El Salvador’s Bitcoin experiment serves as a cautionary tale about the risks and rewards of pioneering financial innovation on a national scale. While it showcased the potential of cryptocurrency, it also underscored the delicate balance between technological progress, economic stability, and the real-world needs of citizens.

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