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Cryptocurrencies and capital flows: Evidence from El Salvador's adoption of Bitcoin

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  • Goldbach, Stefan
  • Nitsch, Volker

Abstract

This paper explores a monetary experiment, the adoption of Bitcoin as legal tender in El Salvador in 2021, to analyze the impact of digital currencies on international capital flows. Using a difference-in-differences approach, we find that, instead of making transfers easier, El Salvador's official cross-border financial activity has decreased after the monetary change. This finding may reflect an increase in uncertainty. However, it is also in line with findings that link digital assets to illegal activity as previously officially recorded financial transfers may have been replaced by unrecorded activities.

Suggested Citation

  • Goldbach, Stefan & Nitsch, Volker, 2024. "Cryptocurrencies and capital flows: Evidence from El Salvador's adoption of Bitcoin," Darmstadt Discussion Papers in Economics 247, Darmstadt University of Technology, Department of Law and Economics.
    • Handle: RePEc:zbw:darddp:302552
    DOI: 10.26083/tuprints-00028016
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    References listed on IDEAS

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    1. Sean Foley & Jonathan R Karlsen & Tālis J Putniņš, 2019. "Sex, Drugs, and Bitcoin: How Much Illegal Activity Is Financed through Cryptocurrencies?," The Review of Financial Studies, Society for Financial Studies, vol. 32(5), pages 1798-1853.
    2. Hites Ahir & Nicholas Bloom & Davide Furceri, 2022. "The world uncertainty index," POID Working Papers 031, Centre for Economic Performance, LSE.
    3. Eugenio Cerutti & Stijn Claessens & Andrew K. Rose, 2019. "How Important is the Global Financial Cycle? Evidence from Capital Flows," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(1), pages 24-60, March.
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    Cited by:

    1. Murakami, David & Viswanath-Natraj, Ganesh, 2025. "Cryptocurrencies in emerging markets: A stablecoin solution?," Journal of International Money and Finance, Elsevier, vol. 156(C).
    2. Hamoon Soleimani, 2025. "An Examination of Bitcoin's Structural Shortcomings as Money: A Synthesis of Economic and Technical Critiques," Papers 2512.07840, arXiv.org.

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    Keywords

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    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Systems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls

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