El Salvador’s ambitious experiment with Bitcoin as legal tender has been significantly curtailed following an agreement with the International Monetary Fund (IMF) for a $1.4 billion loan.
The deal, reached last month, imposes restrictions on the government’s involvement in cryptocurrency activities, requiring that Bitcoin use in the private sector remain voluntary and that public sector participation be phased out. Additionally, the agreement mandates that taxes must only be paid in U.S. dollars—the country’s other official currency—while the government must gradually withdraw from its state-backed crypto wallet, Chivo.
The IMF insists that the loan is crucial to addressing El Salvador’s balance of payments needs and supporting economic reforms. However, the agreement effectively forces the government to scale back its Bitcoin policies, which President Nayib Bukele had championed as a revolutionary step toward financial inclusion and economic sovereignty.
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The reform was swiftly adopted by the Bukele-aligned parliament late Wednesday, marking a notable shift in the country’s stance on cryptocurrency.
Bukele’s Radical Leap into Digital Finance
When El Salvador became the first country in the world to adopt Bitcoin as legal tender on September 7, 2021, the move was met with both enthusiasm and skepticism. Bukele, a self-styled visionary leader with a deep distrust of traditional financial institutions, framed the decision as a means to modernize El Salvador’s economy and free it from reliance on foreign monetary systems. He argued that Bitcoin adoption would provide financial access to the 70 percent of Salvadorans who lacked bank accounts, reduce remittance fees, attract foreign investment, and create new economic opportunities.
To encourage mass adoption, the government launched the Chivo Wallet, a state-backed digital payment platform designed to facilitate seamless Bitcoin transactions. Salvadorans were incentivized to use the platform with a $30 sign-up bonus, and the government also invested an undisclosed amount of public funds into Bitcoin, making large purchases to demonstrate confidence in the digital asset.
Bukele dismissed concerns about Bitcoin’s volatility, insisting that the cryptocurrency would stabilize over time and prove beneficial in the long run. However, the reality was starkly different.
Despite his high-profile efforts to integrate Bitcoin into everyday commerce, its adoption remained limited. According to a 2024 survey by the Central American University, an overwhelming 92 percent of Salvadorans did not use Bitcoin this year. Many businesses continued to conduct transactions in U.S. dollars, citing concerns over Bitcoin’s fluctuating value and the impracticality of using it for day-to-day purchases.
When El Salvador officially adopted the cryptocurrency in September 2021, it was trading at around $44,000. However, the price soon plunged, falling below $23,000 in 2022, leading to substantial losses on the government’s Bitcoin holdings. While the value has since rebounded, soaring by about 50 percent following Donald Trump’s election last November and surpassing $100,000, the IMF remained unconvinced about Bitcoin’s role in El Salvador’s financial system.
IMF’s Pressure and El Salvador’s Retreat from Bitcoin Policies
For more than two years, the IMF had urged El Salvador to reconsider its aggressive Bitcoin policies, warning that the cryptocurrency’s risks outweighed its potential benefits. Concerns included financial instability, regulatory challenges, and the possibility of illicit activities such as money laundering. Bukele, however, remained steadfast in his support for Bitcoin, even doubling down on purchases during market downturns.
But with El Salvador facing economic pressures and the need for international financial assistance, the government was forced to compromise. The IMF’s $1.4 billion loan came with clear conditions aimed at minimizing Bitcoin’s role in the country’s formal economy. Under the agreement, businesses will not be required to accept Bitcoin, the government will cease all participation in crypto-related activities, and the Chivo Wallet will be gradually unwound.
The most symbolic concession is the requirement that taxes be paid exclusively in U.S. dollars, reinforcing the dominance of the traditional financial system over Bitcoin in official transactions. This represents a contrast to Bukele’s original vision of Bitcoin as a tool for economic independence.