How the World Reacted to El Salvador’s Bitcoin Legal Tender Law

When El Salvador made Bitcoin legal tender in September 2021, it wasn’t just a national policy change - it was a global shockwave. For the first time ever, a country declared a decentralized cryptocurrency as official money, alongside the US dollar. The law didn’t just allow Bitcoin payments - it required businesses to accept it. That forced tender clause triggered alarms from central banks, legal experts, and financial institutions worldwide. But while some cheered it as a bold step toward financial freedom, others saw it as a dangerous gamble with national stability.

What the Law Actually Did

El Salvador’s Bitcoin Law didn’t just make Bitcoin optional. It made it mandatory. Under Article 7, every business - from street vendors to supermarkets - had to accept Bitcoin as payment for goods and services. The government set up the Chivo Wallet app, giving users $30 in Bitcoin just for signing up. Taxes could be paid in Bitcoin. Debts could be settled in Bitcoin. Even US dollar obligations could be converted and paid off in Bitcoin.

The system was built around a dual-currency model: US dollars remained the official unit of account, but Bitcoin could be used for transactions. To reduce volatility, the government created an automatic conversion tool that instantly turned Bitcoin into dollars at the point of sale. The idea was simple: make Bitcoin usable without forcing people to hold it.

But here’s the catch - the law didn’t change how accounting worked. Everything was still tracked in US dollars. Bitcoin was just a payment channel. And there was a hard cap: only 21 million Bitcoin would ever exist. That wasn’t a technical limit - it was a political one. The government wanted to avoid inflation fears by tying Bitcoin’s scarcity to its monetary promise.

International Monetary Fund Warned It Was a Risk

The International Monetary Fund (IMF) didn’t hold back. Within weeks, they issued a public statement calling the move “highly risky.” They pointed to three big problems: Bitcoin’s wild price swings, weak consumer protection, and the danger of undermining financial stability. The IMF wasn’t alone. The World Bank, the Bank for International Settlements, and the Financial Stability Board all echoed similar concerns.

Their biggest worry? El Salvador was giving up control. Normally, a country manages its money supply, sets interest rates, and responds to economic shocks. But Bitcoin runs on a decentralized network. No central bank can adjust it. No government can print more if the economy slows down. That’s not innovation - it’s surrender. And for a country with high poverty rates and fragile public finances, that’s terrifying.

Even worse, the IMF questioned whether El Salvador could meet anti-money laundering rules. Bitcoin transactions aren’t always traceable. If criminals start using the Chivo Wallet to move dirty money, who’s responsible? The government? The wallet provider? No clear answer existed.

Legal Experts Called It a Violation of Rights

Beyond finance, the law raised legal red flags. Dror Goldberg, a scholar who studies compulsory tender laws, said forcing businesses to accept Bitcoin violates basic contract rights. In most countries, businesses can refuse cash - no one forces a coffee shop to take $100 bills. Why should they be forced to take Bitcoin?

Goldberg pointed out that forced tender laws historically punished people for not accepting a specific form of payment. That’s not freedom - it’s coercion. In the US, credit card companies can refuse cash. Online stores can refuse PayPal. But in El Salvador, refusing Bitcoin meant breaking the law. That’s unprecedented in modern economies.

Even more troubling: the US dollar, which had been El Salvador’s official currency for 20 years, lost its legal tender status under this new law. That’s a big deal. It meant the government could now legally refuse US dollars as payment - even though most Salvadorans still preferred them.

Why Adoption Fell Flat

The government expected mass adoption. They thought the unbanked - the 70% of Salvadorans without bank accounts - would finally get access to financial tools. But reality didn’t match the hype.

A study by researchers from Stanford and MIT found that while half the population downloaded the Chivo Wallet at launch, over 60% never made a single transaction after their free Bitcoin ran out. One in five never even spent the $30 bonus. And among those who did use it, 88% immediately converted Bitcoin back into dollars. That tells you everything: people didn’t want to hold Bitcoin. They just wanted the free cash.

Businesses? Only 20% actually accepted Bitcoin in practice. And of all sales, just 5% were paid in Bitcoin through the Chivo app. The rest? Dollars. Cash. Cards. The law said “must accept,” but the market said “no thanks.”

Even the users who did engage were not the people the law was meant to help. Most were young, tech-savvy, male, and already banked. The unbanked? They didn’t have smartphones. They didn’t understand crypto. They didn’t trust a digital wallet with no customer service line.

Contrast with Central Bank Digital Currencies

While El Salvador went all-in on Bitcoin, over 100 countries are developing their own digital currencies - central bank digital currencies, or CBDCs. The Bahamas, Nigeria, Jamaica, and China have already launched theirs.

The difference? CBDCs are government-controlled. They’re digital versions of the national currency. The central bank can track transactions, freeze accounts if needed, and adjust supply to stabilize the economy. El Salvador’s Bitcoin system has none of that control.

That’s why economists say CBDCs are the future - not decentralized crypto. They offer the benefits of digital payments without the volatility, lack of regulation, and financial risk. El Salvador’s experiment proves that people don’t want to gamble with their daily money. They want reliability.

What This Means for Other Countries

Since 2021, a few other nations - like the Central African Republic - have tried copying El Salvador’s model. None have succeeded. Why? Because the conditions don’t exist elsewhere.

El Salvador has a small population, a dollarized economy, and a government willing to take extreme risks. Most countries don’t. They need stable money. They need predictable inflation. They need central banks that can respond to crises.

The real lesson from El Salvador isn’t that Bitcoin can be legal tender. It’s that forcing adoption doesn’t work. People choose what they trust. And right now, Bitcoin doesn’t inspire trust as money - it inspires speculation.

Countries looking to improve financial inclusion should focus on mobile banking, low-cost payment apps, and expanding physical access to banks - not crypto mandates. The data shows: when you give people a simple, reliable tool, they use it. When you force them to use something complex and risky, they ignore it.

The Bigger Picture: A Test Case, Not a Blueprint

El Salvador didn’t revolutionize global finance. But it did something more important: it gave the world a real-world test case. We now know what happens when you try to turn Bitcoin into money.

The results? Low adoption. High conversion. Public confusion. Regulatory panic. And no real benefit for the poor.

The cryptocurrency community still celebrates El Salvador as a pioneer. But even Bitcoin’s biggest fans admit: the law’s design was flawed. Mandatory acceptance, poor education, and no real infrastructure doomed it from the start.

The world isn’t moving toward Bitcoin as legal tender. It’s moving toward faster, cheaper, regulated digital payments - powered by central banks, not blockchains.

El Salvador’s experiment didn’t change the world. But it did show us what doesn’t work. And sometimes, that’s more valuable than any success story.