How El Salvador Uses Bitcoin for National Economy - And Why It’s Not Working as Planned

El Salvador made headlines in September 2021 when it became the first country in the world to make Bitcoin legal tender. The move was bold, untested, and wildly controversial. President Nayib Bukele promised it would fix the country’s broken financial system - slash remittance fees, bring the unbanked into the digital economy, and attract global investors. Four years later, the reality is far more complicated.

Why Bitcoin Was Chosen

El Salvador’s economy has long struggled. Over 70% of adults didn’t have a bank account in 2020. Remittances - money sent home by Salvadorans living abroad - made up more than 20% of the country’s GDP. Sending that money through Western Union or MoneyGram cost an average of 10% in fees. That’s $1.4 billion a year going to middlemen, not families.

The government’s answer? Replace those fees with Bitcoin. The idea was simple: if you can send Bitcoin instantly and cheaply, why pay so much? And if you can pay taxes, buy gas, or order coffee in Bitcoin, why not use it everywhere?

They didn’t just talk about it. They passed the Bitcoin Law in June 2021, gave every citizen $30 in free Bitcoin when they downloaded the Chivo wallet app, and built a national infrastructure to convert Bitcoin to U.S. dollars on the spot. The U.S. dollar stayed as the main currency - Bitcoin just got equal footing.

What They Actually Did

The government didn’t just declare Bitcoin legal. They built a whole system around it.

- Every business had to accept Bitcoin as payment - or risk fines.

- The Chivo wallet came preloaded with $30 in Bitcoin for anyone who signed up.

- Gas stations, supermarkets, and even street vendors got free Bitcoin terminals.

- The government bought over $100 million worth of Bitcoin, mostly between 2021 and 2022, when prices were lower.

- Taxes could be paid in Bitcoin. Debts could be settled in Bitcoin. Even salaries could be paid in Bitcoin.

At first, people downloaded the app. Over half the population tried it. The government claimed it was a success. But the numbers tell a different story.

The Adoption Problem

By early 2022, downloads had flatlined. Most people used the app once - to claim their $30, then never opened it again.

A study of 1,800 Salvadoran households found that 60% of early users never made a single transaction after their free Bitcoin ran out. One in five still hadn’t spent their bonus. The people who actually used Bitcoin regularly? Young, educated, urban men who already had bank accounts. The very people the program was supposed to help - rural women, older adults, low-income workers - barely touched it.

Why? Because Bitcoin isn’t easy. You need a smartphone. You need to understand private keys. You need to trust a digital wallet. You need to deal with price swings. For someone living paycheck to paycheck, that’s too much risk.

And the app? It crashed constantly. Transactions failed. People lost money. The government promised instant conversions to dollars, but sometimes it took hours - or didn’t work at all.

The Volatility Problem

Bitcoin’s price didn’t stay steady. It swung wildly. In 2021, El Salvador bought Bitcoin at $40,000. By 2022, it dropped below $20,000. By 2024, it was back above $60,000 - but the damage was done.

The government had spent $150 million in public funds to buy Bitcoin. When prices crashed, they lost tens of millions. That’s money that could’ve gone to schools, roads, or healthcare.

International credit agencies like Moody’s and Fitch warned that holding Bitcoin as a national reserve asset was reckless. The IMF called it a threat to macroeconomic stability. And they weren’t wrong.

The IMF Backed Out

In 2024, El Salvador needed a $1.4 billion loan from the IMF to avoid defaulting on its debt. The catch? The IMF demanded Bitcoin policy changes.

El Salvador agreed to:

- Stop buying Bitcoin with public funds.

- Stop requiring businesses to accept Bitcoin.

- Stop using Bitcoin for tax payments.

- Stop promoting Bitcoin as a national currency.

This wasn’t a minor tweak. It was a full retreat from the original plan. The world’s first Bitcoin nation had to surrender its flagship policy just to get financial help.

Who Really Benefited?

The biggest winners weren’t Salvadoran families. They were Bitcoin traders and speculators. The government’s Bitcoin purchases created artificial demand. Prices spiked. Early adopters cashed out. Foreign investors bought into the hype.

The Chivo wallet was supposed to be a tool for financial inclusion. Instead, it became a marketing stunt. The government spent millions on ads, billboards, and free Bitcoin bonuses - but never fixed the real problems: poor internet access, lack of financial education, or the fact that most Salvadorans just don’t trust digital money.

What’s Left?

Bitcoin is still legal tender. You can still pay for a taco with it. But you won’t see many people doing it.

The government still holds Bitcoin. But it’s no longer buying more. The Chivo wallet still exists - but most users treat it like a savings account, not a payment tool.

The dream of a Bitcoin-powered economy? It’s fading. What remains is a cautionary tale: technology alone can’t fix broken systems. If people don’t understand it, trust it, or find it useful - it doesn’t matter how bold the law is.

What This Means for Other Countries

Other nations - from Nigeria to Ukraine - have looked at El Salvador and thought, "Maybe we should try this too." But El Salvador’s experience shows that Bitcoin isn’t a magic fix. It doesn’t solve poverty. It doesn’t replace banks. It doesn’t make remittances cheaper if people can’t use it.

Countries that want to use digital money should focus on central bank digital currencies (CBDCs) - government-backed, stable, and designed for everyday use. Bitcoin is volatile. It’s not designed to be money. It’s designed to be speculation.

El Salvador didn’t fail because Bitcoin is bad. They failed because they tried to turn a speculative asset into a national currency without the infrastructure, education, or stability to make it work.

What’s Next for El Salvador?

The country isn’t abandoning Bitcoin. But it’s no longer pushing it as the solution to everything. The focus is shifting back to traditional economic tools: controlling inflation, improving tax collection, and rebuilding trust with international lenders.

Bitcoin remains on the books. But in daily life? It’s mostly invisible.

The lesson isn’t that crypto is dead. It’s that money isn’t just code. It’s trust. It’s stability. It’s something people can count on - day after day, no matter what the price does.

El Salvador tried to skip ahead. The world watched. And now, the world knows: you can’t force a revolution with a smartphone app.