El Salvador’s authorities have stripped bitcoin of its legal tender status

What’s new? On January 30, the Parliament of El Salvador approved a reform of the bitcoin law that removes its status as official currency. This status had previously made it mandatory for sellers to accept the asset as payment alongside the US dollar. The reform was the result of two years of pressure from the International Monetary Fund (IMF), which obliged the country to “mitigate the risks from bitcoin” in exchange for a $1,4 billion loan.

Material by El Pais

What else is known? Under the IMF’s terms, the changes had to be implemented by the end of January for El Salvador to expect to receive the funds. Since bitcoin is no longer considered a currency, its acceptance becomes voluntary. Also, the asset will not be accepted to pay taxes. Although the country’s president, Nayib Bukele, is active on social media, he has not announced these innovations.

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El Salvador was the first country in the world to recognize bitcoin as legal tender in September 2021, after which the authorities began investing in the asset. A year later, more than 3/4 of the population opposed spending the state budget for this purpose, and the IMF refused to give El Salvador a loan because of the legal status of BTC.

The law required all businesses and government agencies to accept BTC unless they lacked the necessary technology to conduct transactions. To incentivize the adoption of the asset, the government provided a $30 in BTC bonus to every citizen for installing a Chivo bitcoin wallet on their phone.

A year later, according to Ludop researchers, only 21% of the population had ever used Chivo. By 2024, the percentage of users had fallen to 8,1%.

On November 18, 2022, El Salvador began buying 1 BTC every day, by now accumulating 6056,18 BTC worth $577,33 million.

Later, the authorities created the National Bitcoin Office (ONBTC) to manage crypto projects and opened a bitcoin embassy in Texas. At the end of 2023, El Salvador launched a citizenship program for crypto investments in conjunction with Tether, which issues USDT, the largest stablecoin in the crypto market. In August 2024, ONBTC launched blockchain courses for officials to improve the efficiency of public administration.

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Bukele claimed that BTC legalization would bring “economic prosperity and financial freedom,” and later El Salvadoran authorities repeatedly noted the positive impact of bitcoin legalization on the economy and tourist traffic.

However, by the end of 2022, 91,7% of the population believed the economy had stayed the same or even worsened. In mid-2024, a Central Bank study showed that the number of poor people had increased by 55 000 in one year.

In August 2024, Bukele acknowledged that BTC had not become as widespread as expected.

In October, the IMF again criticized El Salvador for its bitcoin policy and recommended that the authorities restrict public sector access to the first cryptocurrency.

The bitcoin office said the government would liquidate or sell the Chivo wallet late last year. Still, the government will continue to buy BTC, promote laws to attract investment and create educational programs to teach the public how to use the crypto asset.

As El Pais notes, the El Salvadoran authorities’ bitcoin transactions are extremely opaque. Thus, the official portal of the bitcoin office does not disclose data on the sales of the asset and the management of the resulting profits.