In El Salvador, Bitcoin has lost its status as legal tender, marking a setback for President Nayib Bukele, who initially embraced it in 2021. The parliament approved a reform of the Bitcoin law, making its use optional for transactions. Despite Bukele’s popularity due to crime reductions, a large majority of Salvadorans remain reluctant to adopt cryptocurrency, with 91.9% not using it for transactions. The government continues to support Bitcoin, holding significant reserves while the future remains uncertain.
In El Salvador, Bitcoin has failed to gain traction among the majority of its citizens and is no longer recognized as legal tender. This marks a significant setback for President Nayib Bukele, who made headlines in 2021 by being the first leader to officially adopt Bitcoin as a currency.
On Wednesday, the unicameral parliament, which consists of 60 members primarily from Bukele’s ‘New Ideas’ party, approved a reform of the 2021 Bitcoin law. This legislative adjustment was a requirement from the International Monetary Fund (IMF) for a $1.4 billion loan granted in December.
The revised Article 1 has removed the term ‘currency’, now stipulating that transactions involving Bitcoin must be accepted voluntarily by individuals and businesses.
With the new regulations, the use of Bitcoin within El Salvador’s dollarized economy will be optional, allowing private entities the freedom to accept cryptocurrency payments for goods and services. Merchants are no longer obligated to convert their pricing from dollars to Bitcoin.
“Evidently, Bitcoin is no longer legal tender. It should have always been this way, but the government’s attempt to enforce it was unsuccessful,” stated economist Rafael Lemus to AFP.
The reform is set to take effect 90 days after its publication in the Official Journal, which is expected to occur shortly. Interestingly, the new regulations still reference ‘legal tender’, a point that Carlos Acevedo, an economist and former central bank president, notes is nonsensical and should be rectified.
Challenges and Criticisms
Despite the implementation of the 2021 law, most Salvadorans remained hesitant to embrace Bukele’s initiative. The president enjoys popularity for his successful crackdown on gangs, which has led to a significant decrease in homicide rates in the country.
Recent surveys reveal that a staggering 91.9% of Salvadorans did not utilize Bitcoin for transactions in 2024.
“I tried it, but I found it complicated and risky. It’s not suitable for someone like me, who struggles to make ends meet,” shared 55-year-old nurse Juana Henríquez, revealing her frustrations after attempting to invest and ultimately losing money.
President Bukele’s ambitious vision of creating a Bitcoin City—an innovative metropolis funded by cryptocurrency bonds and powered by geothermal energy from a volcano—also fell short of expectations.
While Berlin, located 110 km east of San Salvador, and the beach at El Zonte (to the southwest) are known hotspots for crypto enthusiasts, many of these individuals are foreign tourists or expatriates.
Although this recent shift has yet to receive a comment from Bukele, government officials assert their ongoing commitment to support Bitcoin, which is currently valued at over $100,000.
During a Bitcoin event in San Salvador, Salvadoran ambassador to the U.S., Milena Mayorga, remarked that the reform should be seen as a necessary adaptation to current circumstances.
She also emphasized that the government plans to continue purchasing Bitcoin and maintaining reserves in this cryptocurrency. According to the National Bitcoin Office, El Salvador currently holds 6,050 Bitcoins, equating to approximately $634.8 million.
Nayib Bukele has expressed optimism about the future of Bitcoin, particularly with Donald Trump, whom he supports, potentially returning to the White House, predicting an “exponential appreciation” of the cryptocurrency. He regularly shares updates on social media regarding its rising value.