This reversal is more than just an economic adjustment—it is a test case for how nations balance financial sovereignty with the realities of global economic governance. Did El Salvador’s Bitcoin experiment fail? Or was it simply too soon for such a radical shift in a world still dominated by centralized financial institutions?
The grand experiment meets hard reality
The Bitcoin Law, passed in September 2021, was intended to revolutionize El Salvador’s financial system. The government launched the Chivo e-wallet, introduced tax incentives for crypto businesses and even dreamed up a futuristic “Bitcoin City” powered by volcanic energy. But the grand experiment had cracks from the start.
For one, Bitcoin’s price volatility made it a poor medium of exchange. While adoption rates among the global crypto community surged, everyday Salvadorans were reluctant to embrace Bitcoin, preferring the stability of the U.S. dollar. A survey from 2023 showed that only 8% of the population actively used Bitcoin in transactions.
Moreover, the government’s aggressive Bitcoin purchases—estimated at around 6,000 BTC—exposed the country’s finances to unpredictable market swings. While the holdings are now profitable due to Bitcoin’s recent price recovery, the initial losses fueled criticism. More importantly, the IMF and traditional lenders saw Bitcoin as an unnecessary financial risk, increasing El Salvador’s borrowing costs.
The IMF’s leverage: A lesson in financial sovereignty
When El Salvador sought external financing, the IMF made its stance clear: Bitcoin posed a macroeconomic risk, and if the country wanted international support, it would have to scale back its crypto ambitions. The new $1.4 billion IMF deal requires the government to reduce its Bitcoin purchases, phase out the Chivo wallet and eliminate the requirement that businesses accept Bitcoin.
This is a crucial moment in the global monetary landscape. The IMF has, once again, demonstrated its influence over small economies, reinforcing the reality that even in a decentralized world, centralized financial institutions still call the shots. El Salvador had to choose between financial sovereignty through Bitcoin and financial stability through IMF support. It chose the latter.
A step backward or a strategic reset?
El Salvador’s retreat does not necessarily mean Bitcoin adoption failed—it may simply indicate that the world is not ready for such a radical shift. The country’s experiment revealed both the opportunities and limitations of Bitcoin as a national currency. While it failed to gain widespread local adoption, it did boost tourism, attract crypto entrepreneurs and put El Salvador on the map as a financial innovator.
Moving forward, El Salvador must strike a balance. It should leverage the lessons learned from Bitcoin adoption while using the IMF funds to stabilize its economy. The government can still promote blockchain innovation, encourage remittance payments via crypto and position itself as a hub for digital finance—without making Bitcoin a compulsory part of daily commerce.
The bigger picture: Who controls the future of money?
El Salvador’s experience highlights a broader question: Can nation-states truly break free from the traditional financial order, or will the global economic system always push back? Bitcoin advocates see it as a tool for financial independence, but when a country needs external funding, the rules of the old system still apply.
For now, El Salvador has chosen pragmatism over idealism. But the experiment is far from over. As Bitcoin adoption grows worldwide and financial institutions evolve to accommodate digital assets, El Salvador’s early foray into crypto may be seen not as a failure, but as a pioneering step in the long-term transition to decentralized finance.
The lesson here is clear: Bitcoin is not just a currency; it is a challenge to the existing financial order. And while that challenge has been temporarily subdued, it has not disappeared. The question is not whether Bitcoin will play a role in global finance, but rather when and how governments will learn to integrate it without undermining their economic stability.
El Salvador may have taken a step back, but the world should pay close attention—it won’t be the last country to wrestle with this dilemma.
-
The writer is Dean of the School of Economics at the College of Management and an international business professor, economist, and expert in global markets and technological innovation.
