Will Bitcoin's implementation in El Salvador yield successful results?
In 2021, El Salvador made headlines as the first country to adopt Bitcoin as legal tender, a bold and somewhat risky move that was met with both international stunned spectators and crypto enthusiasts' joy [1]. One year later, the project's performance is being evaluated amidst apprehension about Bitcoin's volatility.
Initially, the adoption of Bitcoin seemed to have a positive impact on El Salvador's economy. The country's credit rating improved from CCC+ in July 2021 to B- by mid-2025, reflecting greater investor confidence [2]. This change was accompanied by a notable decline in the country's sovereign default probability from about 20% in April 2021 to under 5% in March 2025. These improvements were linked to stimulated domestic economic activity and increased international tourism, effects partially credited to the Bitcoin standard adoption [2].
However, the government’s relationship with Bitcoin has been complicated. Following an IMF deal in early 2025, El Salvador revoked Bitcoin's legal tender status and stopped new BTC purchases, keeping Bitcoin holdings stable at around 6,253 BTC [3]. This move was aimed at compliance with the IMF loan terms but reduced direct government-led promotion of Bitcoin to citizens. Consequently, while the government continues to hold Bitcoin on its balance sheet, this has offered limited practical benefits to the general population, who have seen a decline in public education and adoption efforts surrounding Bitcoin use for everyday transactions [3][4].
The project's success in achieving its desired goals is under scrutiny. Challenges to Bitcoin's adoption in El Salvador include its volatility and potential economic downturn [5]. The impact of the "crypto winter" (a period of low cryptocurrency prices) on El Salvador's bitcoin adoption is a concern [6]. Encouraging uptake of Bitcoin usage in El Salvador has proved to be an uphill struggle [7].
Despite these challenges, the adoption of Bitcoin as legal tender has been significant for El Salvador's remittance-heavy economy. The country's reliance on remittances makes Bitcoin an attractive alternative for receiving and sending funds [8]. In an effort to provide financial services to the unbanked population of El Salvador, digital banks like N1co have expressed aspirations to offer alternative solutions for financial services [9].
In summary, El Salvador's Bitcoin legal tender experiment initially enhanced economic indicators such as credit ratings, growth, and financial stability, but its revocation in early 2025 and IMF-imposed restrictions have curtailed ongoing Bitcoin expansion and limited benefits to the wider population [2][3][4]. The country remains influential in crypto regulation and sharing expertise regionally, such as with Bolivia [2], but the real-world application of Bitcoin for average Salvadorans has diminished after the policy change [2][3][4]. The question remains whether El Salvador's crypto bet can produce tangible benefits for its economy and unbanked population.
References:
- El Salvador Becomes the First Country to Adopt Bitcoin as Legal Tender
- El Salvador's Bitcoin Bet: A Mixed Bag of Results
- El Salvador Halts New Bitcoin Purchases Under IMF Agreement
- El Salvador's Bitcoin Bet: A Year Later
- Challenges to Bitcoin's Adoption in El Salvador
- The Impact of the "Crypto Winter" on El Salvador's Bitcoin Adoption
- Encouraging Bitcoin Usage in El Salvador: An Uphill Struggle
- El Salvador's Remittance-Heavy Economy and Bitcoin Adoption
- Digital Banks Aspire to Offer Alternative Financial Services in El Salvador
- The improvement in El Salvador's credit rating and decline in sovereign default probability, initially observed after adopting Bitcoin as legal tender, might have been the result of increased investing opportunities in the country's finance sector.
- Despite the complications surrounding Bitcoin's adoption, such as its volatility and the ongoing challenges in encouraging widespread use among Salvadorans, the country's remittance-heavy economy still sees potential advantages in Bitcoin investing for facilitating financial transactions.
