Two legal tenders, no currency. El Salvador’s bitcoin adoption between world money and international money

Abstract

This article critically examines the adoption of Bitcoin as legal tender in El Salvador, contextualising it within the legacy of official dollarisation after 2001. First, we empirically assess the benefits and costs of dollarisation, finding that, despite some theoretical claims, the benefits remain questionable in hindsight, while the costs for the country were relatively low. Second, we explore Bitcoin's role as legal tender, proposing its understanding as a form of International Money and its potential in facilitating remittances. Building on this, we show that the existing dollarisation and a ‘soft adoption’ of Bitcoin contributed to a comparatively low risk and low associated costs of introducing Bitcoin as a second legal tender. Third, we situate these developments within the broader geopolitical context, where the global monetary and financial system and the hegemony of the USD (the current World Money) are increasingly being repoliticised. In this light, the adoption of Bitcoin can be seen as a trial-and-error, unsuccessful at best, attempt by the Salvadoran government to enhance its leverage, improve remittance flows, and provide a low-cost escape valve in an evolving global landscape.