El Salvador made global headlines in 2021 when it became the first country to adopt Bitcoin as legal tender. The move, championed by President Nayib Bukele, was hailed as a bold step toward financial innovation, aimed at attracting investment, promoting financial inclusion, and reducing reliance on the U.S. dollar. However, four years later, the government has adjusted its Bitcoin policy, making its use voluntary while reaffirming its commitment to Bitcoin as a national asset.
This shift raises important questions: Why is El Salvador modifying its Bitcoin law? What economic and political factors are driving these changes? And what does the future hold for Bitcoin in the country?
Key Changes to El Salvador’s Bitcoin Law
On January 29, 2025, El Salvador’s Legislative Assembly approved amendments to the Bitcoin Law with a 55–2 vote. The new legislation includes several key changes:
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Bitcoin is no longer classified as "currency" but remains legal tender in the country.
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Businesses are no longer required to accept Bitcoin for goods and services, making its use entirely voluntary.
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Bitcoin can no longer be used to pay taxes or settle government debts.
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The government is reducing its involvement in Chivo Wallet, the state-run digital wallet designed to facilitate Bitcoin transactions.
These modifications indicate a strategic retreat from the initial vision of Bitcoin as an everyday currency while maintaining its role as an investment asset.
Why Is El Salvador Scaling Back?
1. IMF Influence and Economic Considerations
One of the primary reasons for this shift is El Salvador’s negotiations with the International Monetary Fund (IMF) for a $1.4 billion Extended Fund Facility loan. The IMF has been vocal about the risks of Bitcoin adoption, citing:
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High price volatility, which creates economic instability.
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Financial integrity concerns, including potential money laundering risks.
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Macroeconomic challenges, such as the impact on fiscal policy and government debt.
As a condition for financial support, the IMF urged El Salvador to reduce the risks associated with Bitcoin. The recent amendments reflect an effort to balance its crypto ambitions with economic stability.
2. Low Adoption Among Businesses and Citizens
Despite government incentives—including a $30 Bitcoin bonus for users of Chivo Wallet—Bitcoin adoption among Salvadorans has remained relatively low. Many businesses still prefer transactions in U.S. dollars, and surveys indicate that most citizens rarely use Bitcoin for everyday purchases.
3. Challenges with Chivo Wallet and Bitcoin Volatility
Technical issues, fraud concerns, and price instability have contributed to skepticism about Bitcoin’s practicality as a currency. Businesses faced difficulties in pricing goods and services due to Bitcoin’s fluctuating value, leading to reluctance in accepting it as payment.
Still Committed: El Salvador’s Bitcoin Investment Strategy
Despite scaling back its Bitcoin law, the government remains committed to Bitcoin as an investment asset. Recent reports confirm that El Salvador has increased its Bitcoin holdings to 6,055 BTC, valued at approximately $612 million.
Milena Mayorga, El Salvador’s ambassador to the United States, reassured the public that the country remains a “Bitcoin nation” and will continue to hold and expand its Bitcoin reserves. This shift suggests that rather than integrating Bitcoin into daily transactions, El Salvador is treating it more like a strategic financial asset—akin to gold.
What’s Next for El Salvador’s Bitcoin Strategy?
With Bitcoin’s role in El Salvador evolving, the government’s future approach may focus on:
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Expanding Bitcoin reserves as part of the country’s financial portfolio.
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Developing new regulations to integrate Bitcoin more securely into the financial system.
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Attracting investment through Bitcoin-backed bonds (such as the “Volcano Bonds” project).
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Encouraging private-sector Bitcoin adoption while stepping back from government-led initiatives.
Conclusion
El Salvador’s decision to scale back Bitcoin’s legal role does not signal the end of its crypto experiment—it marks a strategic realignment. By making Bitcoin voluntary while maintaining strong investment commitments, the government is adapting to both internal challenges and global financial pressures.
Whether this approach will lead to long-term success remains to be seen. However, one thing is clear: El Salvador’s Bitcoin journey is far from over.
FAQs
What prompted El Salvador to rethink its Bitcoin policy?
El Salvador is adjusting its approach due to economic pressures, low domestic adoption, and recommendations from international financial institutions, particularly the IMF.
How has the legal status of Bitcoin changed in the country?
Bitcoin is no longer classified as a "currency" even though it remains legal tender. This means businesses are no longer required to accept it, and it cannot be used for tax payments or government settlements.
What role did the IMF play in this policy shift?
The IMF’s concerns over Bitcoin’s price volatility and economic risks were key factors, especially during negotiations for a $1.4 billion loan. Their recommendations prompted El Salvador to scale back Bitcoin's mandatory usage.
How is Bitcoin being used now in El Salvador?
Instead of being an everyday transactional tool, Bitcoin is now primarily treated as a strategic investment asset, with the government continuing to accumulate reserves.