A survey conducted by the Centre for Citizen Studies at Francisco Gavidia University showed that 24% of the public felt that adopting bitcoin as legal tender was a bad decision, and 53.5% felt that it was a very bad decision. Only 12.9% considered it a good decision, and 6.5% felt that it a very good decision.

Lack of popular support

According to critics of El Salvador's initiative, bitcoin's price instability makes it impractical as a store of value and as medium of exchange. These shortcomings consequently make it a less-than-ideal solution for solving El Salvador's financial inclusivity problem and encouraging citizens to save their money.

Exchange rate instability

The International Monetary Fund was concerned that the legal adoption of bitcoin would result in time and resources being wasted in deciding which money to hold for different purposes at different times, rather than putting those funds toward productive activities. It also argued that it could jeopardize the payment of taxes and the effectiveness of fiscal policy in stabilizing the economy.

Jeopardization of government revenues

The International Monetary Fund cautioned that the legal adoption of bitcoin would reduce the efficacy of monetary policy, since El Salvador would essentially be surrendering monetary autonomy to an outside influence. Increased reliance on erratic international capital flows could also cause significant swings in the prices of domestic goods and services, as the causes of fluctuations in the price of bitcoin are much more difficult to determine than those of currencies such as the US Dollar.

Declining influence of monetary policy

The International monetary Fund expressed concerns over the solvency of banks in El Salvador. These banks would be compelled to hold a significant stock of cryptoassets on their balance sheet in order to support, as required by law, business operations and society’s demands. Large fluctuations in the price of bitcoin, or adverse institutional changes, could potentially result in some banks being unable to pay their debts.

Financial market integrity

- Lack of popular support
- Exchange rate instability
- Jeopardization of government revenues
- Declining influence of monetary policy
- Financial market integrity

University of Minnesota - Twin Cities

On 7 September 2021, El Salvador became the first country to adopt bitcoin as legal tender, through a law passed by the Legislative Assembly.  The Central Bank drew up technical standards to determine how the initiative would function, and the government provided citizens with a digital wallet and launched an educational program to inform the public about its roll-out.

El Salvador's adoption of Bitcoin as legal tender

Gorjon, Sergio. (2021). The Role of Cryptoassets as Legal Tender: The Example of El Salvador. Banco de España. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3944765

The Role of Cryptoassets as Legal Tender: The Example of El Salvador

The transition to accepting bitcoin as legal tender took just under three months, after president Nayib Bukele unveiled the plan at the Bitcoin 2021 conference. The initiative was passed via an expedited procedure, securing a qualified majority in the Legislative Assembly. 

History of El Salvador's Bitcoin adoption

- Slashing the cost of remittances
- Boosting financial inclusion
- Saving public funds

Arguments for El Salvador's Bitcoin adoption

- Brevity
- Role of US Dollar
- State-promoted alternatives
- Delegation of power

Key features of El Salvador's Bitcoin adoption

Criticisms of El Salvador's Bitcoin adoption

- Initial bitcoin price plunge
- Practical difficulties with the digital wallet
- Opacity and lack of consensus

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