On June 5, 2021, El Salvador’s president announced at the BITCOIN 2021 conference in Miami that the country would adopt bitcoin as legal tender—a historic first. The swift legislative process that followed, culminating in the Bitcoin Law’s enactment on September 7, 2021, marked a radical shift in monetary policy. However, the rollout faced significant challenges, revealing operational flaws and broader economic risks.
The Rollout: Speed Versus Stability
El Salvador’s government moved rapidly to implement bitcoin as legal tender:
- June 8, 2021: Draft bill submitted to the National Assembly.
- June 9, 2021: Law approved and published—enabled by the ruling party’s legislative supermajority.
Key components of the implementation included:
Chivo Wallet: A government-developed digital wallet for bitcoin transactions.
- Repeated system crashes during early operation.
- Over 2,000 reported cases of identity theft due to lax validation protocols.
- Bitcoin Trust (FIDEBITCOIN): A $150 million fund managed by BANDESAL to back conversions and subsidize user adoption.
Transparency Concerns
- Chivo S.A. de C.V. (operator of Chivo Wallet) is shielded from audits by the Court of Accounts.
- No public disclosure of contractors, code developers, or procurement processes.
Bitcoin as Currency: Risks and Realities
Comparing dollarization (2001) with bitcoinization highlights stark contrasts:
| Factor | U.S. Dollar | Bitcoin |
|--------------------------|------------------------------------------|--------------------------------------|
| Stability | Low volatility; backed by U.S. institutions | High volatility; no central backing |
| Usage | Global reserve currency | Niche cryptoasset |
| Remittance Costs | Traditional fees apply | Government absorbs costs (taxpayer-funded) |
Stakeholder Skepticism
Public Sentiment:
- 95.9% of Salvadorans surveyed by Central American University favored voluntary bitcoin use.
- 71.2% preferred dollars exclusively.
Business Adoption:
- 89.8% of firms reported no bitcoin sales (October 2021 FUSADES survey).
Multilateral Caution:
- IMF: Warned of financial instability risks.
- World Bank: Cited environmental and transparency concerns.
Policy Recommendations
- Voluntary Adoption: Amend the law to remove mandatory use clauses.
- Transparency Measures: Publish audited financial reports for Chivo Wallet and FIDEBITCOIN.
- Inclusive Dialogue: Engage experts, multilateral institutions, and civil society in reforms.
👉 Why Bitcoin’s volatility challenges its role as legal tender
FAQ Section
Q: Can Salvadorans opt out of using bitcoin?
A: Technically yes, but businesses must accept it—creating de facto pressure.
Q: How does bitcoin affect El Salvador’s debt risk?
A: Sovereign bond yields spiked post-implementation, reflecting investor concerns.
Q: What alternatives exist to bitcoinization?
A: Central bank digital currencies (CBDCs) or regulated stablecoins offer more stability.
Alvaro Trigueros-Argüello (PhD, Economics) and Marjorie Chorro de Trigueros (Attorney, FUSADES) analyze the intersection of policy, technology, and economic trust in El Salvador’s experiment.
👉 Explore the future of digital currencies
Image Credit: Jernej Furman (CC BY 2.0)