The collapse of El Salvador's bitcoin dream

Central American nation rolls back its controversial, world-first cryptocurrency laws

Nayib Bukele, President of El Salvador, on an illustrated backdrop depicting stylised Bitcoin and stacks of coins
(Image credit: Illustration by Marian Femenias-Moratinos / Getty Images)

In 2021, El Salvador caught the world's attention by becoming the first country to make cryptocurrency legal tender, alongside the US dollar.

Last December, as the price of bitcoin broke $100,000 (£77,765) for the first time, the young president Nayib Bukele posted on social media that the Central American nation's crypto holdings had more than doubled in value. But now – as the price for securing a $1.4 billion (£1.1 billion) loan deal from the International Monetary Fund – the country has had to roll back its controversial bitcoin policies.

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'Cryptocurrency paradise'

Bukele's embrace of bitcoin was part of an attempt to "rebrand the tiny and impoverished" nation as a "surfing and cryptocurrency paradise", said the Financial Times. He announced plans to build a "Bitcoin City" in the jungle, "powered by geothermal energy on the slopes of a volcano".

The president claimed cryptocurrency would bring the "70% of Salvadorans who do not use traditional banks into the financial system", said France24. "Swatting away warnings about volatility risks", he ploughed an "undisclosed amount of public money into cryptocurrencies".

But the IMF always opposed Bukele's adoption of bitcoin, said the BBC, and warned that it would be an obstacle to any financial assistance. For a long time, the Salvadoran economy has "teetered on the edge of default", as the IMF stayed "wary" of lending to the country while the volatile currency – with its "potential use in money-laundering and other crimes" – was legal tender, said The Economist.

'More costs than benefits'

El Salvador is still "a focal point for the global bitcoin community", said Forbes. But the mood is now "somewhat subdued" among crypto enthusiasts, one local journalist told the news site.

"A lot of international bitcoiners moved to El Salvador for the Bitcoin Law; some Salvadorans returned," said Joe Nakamoto. "Now, doubt about the country's future with regards to bitcoin has crept in."

But bitcoin's "demotion may be more of a blessing than a concession", said The Economist. Crypto has brought El Salvador "more costs than benefits". The much-promised investment and tourism "have been small beer", while financial gains have been "meagre at best", because the currency "never really caught on". According to a poll published in January by Universidad Centroamericana, 92% of Salvadorans didn't use it at all last year.

Overall, the policy has cost $375 million (£291 million), according to estimates by rating agency Moody's – a sum that "far exceeds the profits on bitcoin holdings, which could still evaporate". There is still no Bitcoin City.

Bukele's "obsession with cryptocurrency has done little to ease El Salvador's economic woes", said the magazine. He is "just the latest crypto-utopian to see his wild ideas dissolve on contact with reality".

Harriet Marsden is a writer for The Week, mostly covering UK and global news and politics. Before joining the site, she was a freelance journalist for seven years, specialising in social affairs, gender equality and culture. She worked for The Guardian, The Times and The Independent, and regularly contributed articles to The Sunday Times, The Telegraph, The New Statesman, Tortoise Media and Metro, as well as appearing on BBC Radio London, Times Radio and “Woman’s Hour”. She has a master’s in international journalism from City University, London, and was awarded the "journalist-at-large" fellowship by the Local Trust charity in 2021.