Bitcoin in El Salvador

[1] It has been promoted by Nayib Bukele, the president of El Salvador, who claimed that it would improve the economy by making banking easier for Salvadorans, and that it would encourage foreign investment.

[2][3] The adoption has been criticized both internationally and within El Salvador, due to the volatility of Bitcoin, its environmental impact, and lack of transparency regarding the government's fiscal policy.

In 2024, El Salvador agreed to partially limit its involvement with Bitcoin as part of a deal made with the International Monetary Fund (IMF).

[4] The purpose of dollarizing El Salvador was to achieve financial stability by encouraging foreign investment and decreasing transaction costs of international trade.

[5] However, the government was unable to control monetary policy after dollarization, as the value of currency was tied to the United States Federal Reserve.

[21] The World Bank rejected a request from the government to assist with the implementation of the law due to transparency concerns and the environmental impact of bitcoin mining.

[22] The government announced that it would distribute US$30 in bitcoin to people who sign up to use an electronic wallet called Chivo (Salvadorean slang for 'cool'), at a cost of up to $75 million.

[21][24] A poll published by the Central American University in September 2021 found that 9 out of 10 Salvadorans did not have a clear understanding of what bitcoin was, and 68% disagreed with the decision to adopt it as legal tender.

[30] Many international financial experts warned that bitcoin's volatility would introduce unnecessary risk and instability to El Salvador's underdeveloped economy.

[31][21][32] In July 2021, Moody's Investors Service downgraded the credit rating of El Salvador, citing Bukele's fiscal policies and the adoption of bitcoin as a factor.

[33] The day following El Salvador's adoption of bitcoin, Panamanian congressman Gabriel Silva proposed a similar bill that would give "legal, regulatory, and fiscal certainty to the use, holding and issuance of digital value and crypto assets in the Republic of Panama.

[35][36] In particular, the potential use of Bitcoin to evade taxes, and in transactions related to transnational gangs and human trafficking in El Salvador was noted.

[39][40] Cryptocurrency advocates on Twitter and Instagram shared videos of people using bitcoin to make purchases at chains like Starbucks, Pizza Hut and McDonald's.

[10][41] A poll by the Centro de Estudios Ciudadanos at Francisco Gavidia University in November 2021, found that 91% of Salvadorans preferred to use the US dollar over Bitcoin.

[43] In January 2022, the International Monetary Fund urged El Salvador to cease using bitcoin as legal tender, citing its risk to the country's financial stability, integrity and consumer protection.

[44][45] The IMF advised that the continued use of bitcoin would make it less likely that the institution would grant El Salvador a previously discussed loan of $1.3 billion.

[61][62] A year after the adoption of bitcoin, economic surveys found that cryptocurrency was not widely used in El Salvador, due in part to a lack of digital literacy.

[66] In March 2022, the Salvadoran government announced that the "Volcano Bonds" project had been postponed, citing global economic conditions and the Russian invasion of Ukraine as factors.

[77][78] Based on the available data from the Instituto Universitario de Opinión Pública (Iudop) of the Universidad Centroamericana José Simeón Cañas (UCA), here is the percentage of Salvadorans who reported using Bitcoin for transactions from 2021 to 2024: 2021: 25.7%, 2022: 21%, 2023: 12%, 2024: 8.1%.