El Salvador’s Bitcoin experiment five years after legal tender

Bitcoin remains a legal tender in El Salvador five years after the government approved the law, but several high-profile projects have slowed and everyday use is narrower than originally planned.

President Nayib Bukele pushed the law through in September 2021 with aims to lower remittance costs, broaden financial access and attract foreign investment. The government launched a state-backed wallet called Chivo, installed Bitcoin ATMs, offered cash incentives to encourage downloads, began buying Bitcoin for the national balance sheet and proposed a Bitcoin-backed bond and geothermal mining at volcano sites.

The Chivo wallet suffered technical problems at launch. Initial download numbers were high, but regular use dropped below expectations. Merchants often declined Bitcoin payments because of price volatility and the extra steps needed to convert receipts to U.S. dollars, which remains the main currency for most transactions in the country. Reports of outages and customer complaints followed the rollout.

Planned initiatives have faced delays. A proposal for so-called volcano bonds has not advanced at scale, and public records show limited progress on planned geothermal mining projects. Government purchases of Bitcoin have been intermittent and officials have not issued the large bond or deployed mining operations that were outlined early in the program.

International financial institutions and credit analysts flagged fiscal and economic risks tied to holding Bitcoin on the public balance sheet. Concerns raised include exposure to cryptocurrency price swings, accounting and reserve management issues and potential effects on sovereign debt assessments. These institutions requested more transparency and clearer risk-management practices.

Surveys and private-sector feedback indicate that a minority of Salvadorans use the Chivo wallet or accept Bitcoin payments. Many households continue to rely on cash and traditional bank services. While remittances remain an important household expense, available data show limited evidence that Bitcoin has reduced fees for most recipients.

The government continues to describe Bitcoin as legal tender and to defend the policy’s original goals. Calls from auditors and analysts for independent reviews and clearer reporting on Bitcoin holdings and transactions have continued.

Five years after the law passed, Bitcoin is part of El Salvador’s legal framework, several major projects remain incomplete and public use of the cryptocurrency is limited.