The Fall of El Salvador’s Bitcoin Revolution: A Cautionary Tale for Developing Nations

In 2021, El Salvador made history by becoming the first country in the world to adopt Bitcoin as legal tender. This bold move, spearheaded by President Nayib Bukele, was touted as a revolution, a step toward economic autonomy, and a potential solution to the nation’s long-standing issues with inflation and reliance on the US dollar. But just a few years later, the "Bitcoin Revolution" has come to an abrupt halt. El Salvador’s experience serves as a cautionary tale for other developing nations that may have been considering similar steps toward financial independence through cryptocurrency.

The IMF Strikes Back

El Salvador's Bitcoin experiment has been severely curtailed, and the primary force behind this reversal is the International Monetary Fund (IMF), an institution that has long been involved in the economic oversight of developing countries. The IMF, an arm of the United Nations, is notorious for its role in dictating the economic policies of nations in exchange for development loans. These loans often come with stringent conditions—known as "conditionality"—that require nations to implement austerity measures, privatize sectors, and, in El Salvador’s case, abandon innovative financial initiatives like Bitcoin.

Despite Bukele’s initial promise to free the Salvadoran people from the chains of central banking, the IMF's influence has ultimately forced the country to scale back its ambitious Bitcoin agenda. In exchange for a $1.4 billion loan, El Salvador agreed to halt its Bitcoin-related activities, including ceasing Bitcoin purchases and discontinuing the policy that required businesses to accept the cryptocurrency. The IMF's justification? To mitigate the "risks" associated with Bitcoin, despite its growing adoption in some parts of the world.

Bitcoin’s Slow Adoption

While Bukele’s government introduced Bitcoin with the vision of empowering the Salvadoran people by providing them with a decentralized, borderless, and inflation-resistant currency, the reality has not lived up to expectations. A 2023 survey by Francisco Gavidia University in San Salvador revealed that approximately 92% of Salvadorans did not use Bitcoin in their daily lives. This slow adoption, combined with widespread skepticism about Bitcoin's volatility, led to growing disillusionment with the initiative.

The government’s decision to move forward with Bitcoin as legal tender was controversial from the start. The public largely remained unconvinced, and the technology required for effective Bitcoin transactions—such as access to smartphones and the internet—was not universal. Bukele’s administration offered incentives like $30 in free Bitcoin to encourage adoption, but most recipients simply converted it to dollars or used it for small transactions.

The IMF's Intervention: A Step Back for Bitcoin

To secure the IMF loan, Bukele had little choice but to backtrack on his Bitcoin experiment. The country’s Bitcoin strategy has shifted from widespread adoption to simply accumulating Bitcoin as part of a national reserve. The government recently purchased 12 more Bitcoins, but the focus has now moved away from using Bitcoin as a currency in everyday transactions. The government also announced plans to scale back or even privatize Chivo, the Bitcoin wallet launched in 2021 to facilitate transactions. While the public’s use of Chivo remains unclear, the fact that the wallet is now on the chopping block speaks volumes about the waning enthusiasm for Bitcoin among the Salvadoran authorities.

A Bigger Picture: The IMF’s Global Influence

El Salvador’s decision to abandon its Bitcoin experiment highlights the immense power the IMF wields over developing nations. The IMF has long acted as a gatekeeper, controlling access to international loans and financial assistance while demanding that countries adhere to its policies. These policies often involve cutting public spending, privatizing state-owned assets, and following a neoliberal economic agenda that benefits multinational corporations and the financial elites of the developed world. In El Salvador's case, that meant sacrificing the Bitcoin revolution in favor of securing much-needed funds.

This power dynamic is not unique to El Salvador. Countries in Africa, Latin America, and elsewhere have faced similar pressures from the IMF to adhere to policies that prioritize the interests of wealthy nations and international financial institutions over those of the local population. In Kenya, for example, protests erupted in 2024 over an IMF-led austerity bill that would impose regressive taxes and budget cuts, further highlighting the exploitative nature of the IMF’s practices.

Economist Fadhel Kaboub has described this global financial system as "neo-colonial wealth extraction," in which underdeveloped nations are forced to remain within a financial architecture designed by and for wealthy nations. In this context, the IMF’s opposition to Bitcoin makes perfect sense: the decentralized nature of cryptocurrencies threatens the dominance of fiat currencies and the global financial order that the IMF seeks to maintain.

The Future of Bitcoin and Financial Independence

Despite these setbacks, the Salvadoran government insists that its commitment to Bitcoin is not entirely dead. The country will continue to accumulate Bitcoin as part of its reserve strategy, and Bukele’s government still touts Bitcoin as a means of potential financial independence in the future. However, as long as the IMF continues to exert its influence over developing nations, it seems unlikely that Bitcoin will become a widely accepted currency in any country that depends on external financial support.

The lesson of El Salvador’s failed Bitcoin experiment is clear: while nation-states may hold Bitcoin in their reserves, the IMF and other global financial institutions will not allow them to use it as a legitimate currency without consequences. For developing nations that seek to escape the grip of central banking and the global financial system, Bitcoin may offer a glimmer of hope—but only if they can find a way to navigate the powerful forces that seek to maintain the status quo. Until then, the dream of financial autonomy through Bitcoin remains just that: a dream.