How El Salvador Uses Bitcoin for Its National Economy - And Why It’s Struggling

On September 7, 2021, El Salvador did something no other country had ever done: it made Bitcoin legal tender alongside the U.S. dollar. The move, pushed by President Nayib Bukele, was meant to shake up a stagnant economy. Remittances - money sent home by Salvadorans living abroad - make up over 20% of the country’s GDP. Sending that money through Western Union or banks cost up to 20% in fees. Bitcoin, the government said, would cut those costs to near zero. It would bring banking to the 70% of adults without bank accounts. It would attract investors looking for the next big thing. It would be a revolution.

But three years later, the revolution hasn’t taken root. Bitcoin is still legal. The government still holds over 5,000 BTC. The app, Chivo, is still on phones. But most Salvadorans aren’t using it for daily life. They’re not paying for groceries, bus rides, or electricity in Bitcoin. They’re not paying taxes in Bitcoin. They’re not even holding onto the free Bitcoin they got when the app launched.

The reality is simpler: El Salvador didn’t fix its economy with Bitcoin. It added a layer of complexity to an already fragile system.

Why Bitcoin Was Chosen

El Salvador’s economy has been stuck for decades. Low growth. High debt. Heavy reliance on the U.S. dollar since 2001. When the pandemic hit, remittances dipped - and with them, household income. The government needed a way to get money to people faster and cheaper. Bitcoin looked like the answer.

The plan had three clear goals:

1. Reduce the cost of remittances by cutting out middlemen.
2. Bring financial services to the unbanked.
3. Attract foreign capital by becoming the world’s first Bitcoin nation.

The government didn’t just announce it - they backed it. They set aside $150 million to buy Bitcoin and to fund the Chivo wallet app. They made it illegal for businesses to refuse Bitcoin as payment. They created a system where every Bitcoin payment could be instantly converted to U.S. dollars. And they gave every citizen $30 in Bitcoin just for downloading the app.

At first, it looked like a success. Over half the population downloaded Chivo. Social media buzzed. Crypto influencers hailed it as the future. But the real test wasn’t downloads - it was usage.

What Actually Happened

A study by the National Bureau of Economic Research surveyed 1,800 Salvadoran households. The results were stark. Only 15% of those who downloaded Chivo used it more than once. More than 60% never made a single transaction after spending their free $30. One in five still hadn’t touched their bonus Bitcoin.

Who was using it? Mostly young, educated, urban men who already had bank accounts. The people the program was meant to help - rural women, older adults, small vendors - barely touched it. Why? Because Bitcoin wasn’t easier. It was harder.

Setting up a wallet required a smartphone, a stable internet connection, and understanding terms like “private key” and “gas fee.” Many didn’t have smartphones. Others lived in areas with spotty signal. The app crashed constantly in its early days. Transactions failed. People lost money. Trust vanished.

And then there was the price. Bitcoin swung wildly. In late 2021, it hit $68,000. By early 2022, it dropped below $30,000. The government had bought Bitcoin at high prices. When it sold some to cover budget shortfalls, it took losses. Critics called it a fiscal gamble. The IMF called it reckless.

The IMF Intervention

In 2024, El Salvador needed a $1.4 billion loan to avoid defaulting on its debt. The IMF said yes - but only if the country scaled back its Bitcoin experiment.

The agreement didn’t ban Bitcoin. But it forced changes: no more public Bitcoin purchases, no more taxpayer-funded incentives, no more using Bitcoin in government accounting. The country had to treat Bitcoin like a speculative asset, not a currency. The government had to stop pretending it was a solution to inflation or financial inclusion.

This was a major retreat. The original vision - a Bitcoin-powered economy - was officially scaled back. The message from the IMF was clear: volatility, lack of regulation, and poor adoption make Bitcoin unsuitable as national money.

Who Lost and Who Gained

Who won? A small group of tech-savvy entrepreneurs, crypto investors, and foreign speculators who bought land or started businesses in El Salvador hoping for tax breaks or future Bitcoin gains. Some mining operations popped up near geothermal sites, but they were small and controversial due to energy use.

Who lost? Ordinary Salvadorans. The government spent $150 million on Bitcoin and the app - money that could have gone to roads, schools, or electricity grids. The promised cost savings on remittances never materialized for most people. Many still use Western Union. The unbanked remain unbanked.

Even the Chivo app, once a symbol of progress, became a symbol of disappointment. People used it to cash out their free Bitcoin - then deleted it.

Why It Failed

El Salvador didn’t fail because Bitcoin is bad. It failed because it treated Bitcoin like a magic tool, not a technology with limits.

Bitcoin isn’t designed for everyday payments. It’s slow. It’s expensive during spikes. It’s volatile. It doesn’t scale. Trying to make it a national currency ignored its core design. No central bank can control it. No government can stabilize it. No merchant can plan around it.

Also, the rollout ignored human behavior. You can’t force adoption with free money. People need trust, simplicity, and reliability. Bitcoin offered none of that to most Salvadorans.

And the political context didn’t help. President Bukele’s administration has been criticized for weakening democratic checks. Critics saw the Bitcoin move not as economic policy - but as a power play to bypass traditional financial systems and centralize control.

What’s Left Now

Bitcoin is still legal tender. The government still holds Bitcoin. The Chivo app still exists. But it’s a shadow of the original plan.

Today, El Salvador’s Bitcoin experiment is more of a footnote than a foundation. It’s a cautionary tale for other countries thinking of copying it. The IMF won’t allow it. The people didn’t embrace it. The economy didn’t grow because of it.

What El Salvador did succeed in doing? It forced the world to pay attention. It showed that cryptocurrency can be more than a speculative asset - it can be a political statement. But it also showed that money, at its core, is about trust. And trust can’t be bought with free Bitcoin.

For now, the U.S. dollar still runs El Salvador’s economy. Bitcoin? It’s just a quiet, unused feature on a phone most people forgot about.

What This Means for Other Countries

Other nations - especially those with high remittance costs or weak banking systems - might look at El Salvador and think: “We should do that too.” But the lesson isn’t to adopt Bitcoin. It’s to ask harder questions.

Is the problem the cost of sending money? Then look at regulated digital wallets like Ripple or local mobile money systems like M-Pesa in Kenya. Is the problem financial inclusion? Then invest in low-cost banking infrastructure, not crypto apps. Is the problem distrust in government? Then fix governance, not currency.

Bitcoin isn’t the solution to economic weakness. It’s a distraction from it.

El Salvador didn’t become a financial pioneer. It became a case study - in ambition, in error, and in the limits of technology when it’s forced into a role it wasn’t built for.