El Salvador Retreats from Bitcoin Experiment

After a deal with the International Monetary Fund (IMF) that secured a $1.4 billion loan for El Salvador, Bitcoin is no longer the ruling currency in the country. In an effort to comply with the IMF’s conditions, El Salvador modified its cryptocurrency laws, sparking significant changes to its stance towards Bitcoin. President Nayib Bukele, known for his pro-Bitcoin rhetoric, had initially championed laws that made Bitcoin legal tender in the country. However, in light of the IMF agreement, El Salvador’s congress, primarily comprising Bukele allies who support Bitcoin, revised the legislation.
The new laws passed with an overwhelming majority of 55-2, removing the designation of Bitcoin as “currency” while still upholding its status as legal tender. Consequently, businesses now have the option to accept or decline Bitcoin as a form of payment, eliminating the previous government mandate that required their compliance. Furthermore, the government has ceased accepting Bitcoin for taxes and other official payments and has reduced investments in the state-backed crypto-wallet, the “Chivo Wallet.”
Bukele had fervently advocated for Bitcoin in El Salvador, unveiling ambitious plans to revolutionize the country’s economy. His grand vision included the development of a Bitcoin city centered around a volcano designed in the shape of a physical Bitcoin. The city was intended to harness geothermal energy from the volcano for cryptocurrency mining, embodying Bukele’s unwavering optimism for the cryptocurrency’s potential to drive economic growth.
However, the economic challenges faced by El Salvador led to the community grappling with the need to stabilize the country through external support, resulting in the IMF loan negotiation. The IMF had long expressed reservations about El Salvador’s reliance on Bitcoin due to its high volatility and associated risks. Despite Bukele’s assertions that El Salvador remains a Bitcoin-friendly nation, data reveals a mere 12% adoption rate among the populace, falling significantly short of expectations.
In a recent interview with TIME, Bukele acknowledged the limited success of the Bitcoin initiative, recognizing that it had not gained the widespread acceptance he had hoped for. While Bukele emphasized the positive impact of the campaign on El Salvador’s international image, recent conversations with U.S. officials have steered the narrative towards graver concerns. Discussions between Bukele and U.S. Secretary of State Marco Rubio have shifted focus to El Salvador’s provision of supermax prison facilities for potential use by the U.S.
The proposal, while controversial, highlights the altered priorities within El Salvador, where the emphasis has shifted from promoting Bitcoin adoption to accommodating foreign penal institutions. As Bitcoin loses prominence in the country, prisons emerge as a central feature in discussions with U.S. officials, underscoring the contradictory trajectories in El Salvador’s recent socio-political landscape.