El Salvador Bitcoin Legal Tender: The Law, the Chivo Wallet, and the 2025 Reform

El Salvador's Legislative Assembly passed the Bitcoin Law on June 8, 2021 by a vote of 62 to 84, making it the first country to give bitcoin legal tender status. The law took effect on September 7, 2021. Under a $1.4 billion IMF program, a January 2025 reform made acceptance voluntary, ended tax payments in bitcoin, and removed the state's convertibility guarantee.

1. June 2021: From Conference Announcement to Law in Four Days

• Event Background: El Salvador has not had its own currency since 2001, when it adopted the US dollar. Around a fifth of GDP comes from remittances sent home by Salvadorans abroad, historically through services charging significant fees. President Nayib Bukele, elected in 2019 and running an aggressively online administration, was looking for a signature economic policy.
• Event Details: On June 5, 2021, Bukele announced by video at the Bitcoin 2021 conference in Miami that he would send a bill making bitcoin legal tender. The bill reached the Legislative Assembly days later and passed on June 8, 2021 with 62 of 84 votes, in a chamber where Bukele's party held a supermajority. Published in the official gazette on June 9 as Legislative Decree No. 57, the law was set to take effect 90 days later, on September 7, 2021.
• Technical Architecture Innovation:
  • Legal tender without monetary sovereignty: Because El Salvador uses the dollar, adopting bitcoin did not displace a national currency — it added a second one. The country could not print dollars, so it also could not absorb bitcoin volatility through monetary policy.
  • A four-day legislative process: There were no public hearings, no central bank impact assessment published in advance, and no implementing regulations at the time of the vote. The regulation, Decree No. 27, came only on August 27, 2021.
• Direct Impact: Bitcoin's price rose on the announcement, and the law drew immediate warnings from the IMF and World Bank about fiscal, consumer protection, and anti-money-laundering risks. The World Bank declined a request for implementation assistance.
• Long-term Significance:
  • A precedent that stood alone: The Central African Republic adopted bitcoin as legal tender in April 2022 and repealed the measure in March 2023. No other country has followed.
  • Sovereign adoption as a category: The law created the template that later national bitcoin reserve proposals, including the United States' 2025 Strategic Bitcoin Reserve, would be measured against.
• Lessons Learned: Speed of legislation is not a measure of policy readiness. The implementation problems that followed were all visible in the gap between the vote and the regulations.
• Subsequent Development: On September 6, 2021, the day before the law took effect, the government made its first purchases, announcing 400 BTC in two tranches and reaching 550 BTC within a day.

2. September 7, 2021: Chivo and the $30 Bonus

• Event Background: A legal tender law is meaningless without payment infrastructure. The government built its own wallet, Chivo — Salvadoran slang for "cool" — offering both bitcoin and dollar balances, Lightning Network support, and a network of ATMs.
• Event Details: To drive adoption, every citizen who registered with a national ID received $30 in bitcoin. On launch day, September 7, 2021, Chivo was taken offline within hours because server capacity could not handle registrations, and was restored around midday after capacity was increased. Bitcoin's price fell sharply that day, producing an immediate paper loss on the government's holdings, and Bukele announced further purchases as the price dropped. More than a thousand people protested in San Salvador, and some protesters set fire to a Chivo ATM kiosk.
• Technical Architecture Innovation:
  • A custodial wallet for a non-custodial asset: Chivo held keys on users' behalf. This made onboarding possible for a population with limited banking access, but it meant the state operated a payment system with the failure modes of any centralized service — outages, identity fraud complaints, and support backlogs, all of which occurred.
  • Lightning for remittance costs: Chivo integrated the Lightning Network so small transfers could settle at negligible cost, addressing the fee problem that had motivated the policy in the first place.
• Direct Impact: The government reported roughly three million Chivo downloads within about a month, close to half the population, though downloads driven by a cash bonus are a weak measure of usage.
• Long-term Significance:
  • The best natural experiment available: Because adoption was subsidized and nationwide, El Salvador produced the only large-scale dataset on what happens when a country hands its population bitcoin.
  • Infrastructure outlived the mandate: Chivo ATMs and merchant terminals remained in place even after the legal requirement to accept bitcoin was removed.
• Lessons Learned: Distribution is not adoption. Getting an app onto phones is the easy part, and the $30 bonus proved it.
• Subsequent Development: Under the IMF agreement, the government committed to winding down its involvement in the Chivo wallet.

3. What the Law Actually Required

• Event Background: The original text imposed obligations that went considerably further than "bitcoin is permitted," and those obligations are what the IMF later targeted.
• Event Details: The 2021 law made bitcoin legal tender with unlimited discharge power, required every economic agent to accept it as payment when offered — excepting those who evidently lacked the technology to do so — allowed taxes to be paid in bitcoin, permitted pre-existing dollar debts to be settled in bitcoin, kept the dollar as the reference currency for accounting, and directed the state to guarantee automatic, instant convertibility from bitcoin to dollars through a trust at the development bank BANDESAL, capitalized at $150 million.
• Technical Architecture Innovation:
  • The convertibility trust was the real fiscal exposure: By promising instant conversion at market rates, the state absorbed the price risk between a merchant accepting bitcoin and the government selling it. That guarantee, not the holdings themselves, was the structural liability the IMF objected to.
  • Mandatory acceptance versus voluntary use: Compulsory acceptance is what distinguished El Salvador's law from every other country's permissive framework, and it is the provision that produced the strongest domestic and international resistance.
  • The Volcano Bond that never launched: In November 2021 the government announced a $1 billion bitcoin-backed bond to fund a geothermal-powered "Bitcoin City." It was repeatedly delayed and never issued in its original form, and the country's dollar bonds traded at deeply distressed prices through 2022 before recovering.
• Direct Impact: Merchants were legally obliged to accept an asset whose price moved 10% in a day, with the state carrying the conversion risk on their behalf.
• Long-term Significance:
  • A clean separation of policy questions: The El Salvador experience showed that holding bitcoin in reserves, accepting it for payment, and mandating that others accept it are three distinct policies with different risk profiles.
• Lessons Learned: The expensive part of monetizing a volatile asset is not owning it, but promising someone else they can exit it at par.
• Subsequent Development: The BANDESAL trust and the automatic convertibility provisions were among the specific items removed by the 2025 reform.

4. The IMF Deal and the 2025 Reform

• Event Background: El Salvador needed external financing. The IMF had objected to the bitcoin policy since January 2022, when its board urged the removal of bitcoin's legal tender status.
• Event Details: In December 2024 the government and the IMF reached a staff-level agreement on a 40-month Extended Fund Facility worth approximately $1.4 billion, part of a wider multilateral package exceeding $3.5 billion with the World Bank, IDB, and CAF. On January 29, 2025 the Legislative Assembly adopted Legislative Decree No. 199, published on January 30 and effective 90 days later on April 30, 2025. The reform made acceptance voluntary, limited it to natural persons and wholly private legal persons, repealed the provision authorizing tax payments in bitcoin, and removed the state-backed automatic convertibility. The IMF board approved the arrangement on February 26, 2025, disbursing roughly $113 million immediately.
• Technical Architecture Innovation:
  • What the amended law says versus how it is reported: The consolidated text still describes bitcoin as "curso legal" — legal tender — while making acceptance voluntary and private-only. Many outlets reported that legal tender status was rescinded; the more precise statement is that the label remains while every obligation attached to it was removed. Sources genuinely disagree on which framing is correct, and both appear in reputable coverage.
  • The purchase constraint: The program includes a continuous performance criterion barring voluntary bitcoin accumulation by the public sector and prohibiting bitcoin-denominated or bitcoin-indexed public debt.
• Direct Impact: The mandatory-acceptance experiment ended after three years and seven months, while the government's bitcoin holdings remained in place.
• Long-term Significance:
  • A visible reconciliation problem: The National Bitcoin Office has continued to announce daily one-bitcoin purchases, and public trackers put government-linked holdings at roughly 7,700 BTC by mid-2026, up from about 5,968 BTC in December 2024. In a July 2025 letter released with the IMF's first program review, the central bank president and finance minister stated that public-sector holdings had not increased since February 2025, and the IMF characterized apparent increases as consolidation across government-owned wallets rather than new purchases.
  • Signal and supervision on separate tracks: The government continues to broadcast accumulation while the Fund records a flat balance, and both parties have so far treated this as compatible with the program.
• Lessons Learned: When a policy is primarily a signal, its political value can survive the removal of nearly all of its legal content.
• Subsequent Development: El Salvador remains among the largest publicly disclosed sovereign bitcoin holders, and the reserve is now the surviving element of a policy that originally had four.

5. What Adoption Data Shows, and Common Misconceptions

• Event Background: Claims about El Salvador's bitcoin usage range from transformative to nonexistent. Survey data supports a narrower conclusion than either.
• Event Details: An NBER working paper by Alvarez, Argente, and Van Patten, based on a nationally representative survey of 1,800 households conducted in 2021, found that although awareness was near universal and around 68% of respondents had heard of Chivo, only a minority downloaded it, and of those, roughly 20% continued using it after spending the $30 bonus. Subsequent national surveys, including annual polling by Central American University, have consistently found that a large majority of Salvadorans do not use bitcoin for payments.
• Technical Architecture Innovation:
  • Remittances did not move on chain at scale: The policy's central economic justification was cheaper remittances, but central bank data has consistently shown that bitcoin channels handle a small single-digit percentage of remittance flows at most.
  • Holding is not spending: The government's reserve strategy has been financially favorable in periods when bitcoin appreciated, but that outcome is unrelated to whether citizens use bitcoin as money, and the two are frequently conflated.
• Direct Impact: The measurable result is a country with a sovereign bitcoin reserve, functioning payment infrastructure, and low everyday usage — an outcome that neither the policy's advocates nor its harshest critics predicted precisely.
• Long-term Significance:
  • The clearest evidence available on forced adoption: No other country has run this experiment, so El Salvador's data remains the empirical basis for arguments on both sides.
  • Reputation effects were real: Tourism rose sharply after 2021 and the country attracted crypto industry conferences and residents, effects that are hard to separate from the government's simultaneous, and highly consequential, security policies.
• Lessons Learned: A state can make an asset legal, distribute it, and subsidize its use, and still not make it money in daily life. Money adoption is driven by what people find useful, not by what they are permitted or required to accept.
• Subsequent Development: With the reform in force and the IMF program running, El Salvador's bitcoin policy has settled into a reserve-and-signal strategy, which is roughly the model other governments have since adopted.