El Salvador was the 1st nation to make Bitcoin legal tender. It was a spectacular failure

El Salvador President Nayib Bukele wanted to build an entire “Bitcoin city” intended to be tax-free haven funded by providing $1 billion in government bonds.

In 2021, El Salvador made Bitcoin legal tender and became the first country in the world to do so. Its President Nayib Bukele is a cryptocurrency enthusiast and had said that Bitcoin would attract foreign investment, create jobs, and help “push humanity at least a tiny bit into the right direction”.

What the move did, however, was push the country towards a spectacular failure.

According to reports, Bukele wanted to build an entire “Bitcoin city” intended to be tax-free haven funded by providing $1 billion in government bonds -- the Central American country had adopted the US dollar to replace its own currency, the colón, in 2001.

The President's plan was to spend half the revenue from the bonds on the city and buy Bitcoin with the other half with assumed profits being used to repay the bondholders. But the financial experiment proved to be an almost complete failure mainly because El Salvador's people did not embrace the idea.

To encourage citizens to warm up to it, the government created an app called “Chivo Wallet” to trade Bitcoins for dollars without charging any transaction fee. The wallet also came preloaded with $30 as a bonus, but even that did not generate enthusiasm among the citizens.

Read more: With Ethereum 'Merge' around the corner, what happens to Bitcoin?

A national survey carried out across 1,800 Salvadoran households in February found that only 20 per cent of the population was using Chivo Wallet for Bitcoin transactions. Although, more than double that number of people downloaded the app only to claim the US$30.

Even among those who identified as business owners, only 20 per cent of them, mainly large companies, said they were accepting bitcoins as payment.

Meanwhile, the Nayib Bukele government spent more than $100 million on buying bitcoins which are now worth less than $50 million.

This failure has adversely affected El Salvador’s credit rating and relations with the International Monetary Fund (IMF) and made investors wary of lending to the country.

Read more: In pics | A look at the design of the world's first Bitcoin City in El Salvador

Earlier this year, the IMF requested El Salvador to reverse Bitcoin’s legal lender status due to the “large risks for financial and market integrity, financial stability and consumer protection” since the cryptocurrency is notorious for its use in illegal activities and because of its volatility.

But Bukele, whose government has been seeking a loan of more than $1 billion from the IMF, responded to the request with a meme.

https://t.co/s1F5kwOBEn pic.twitter.com/LD0I2dBHha

— Nayib Bukele (@nayibbukele) January 26, 2022

What do you think of Bitcoin as legal tender? Let us know in the comments below.