Countries are beginning to explore the use of Bitcoin and other cryptocurrencies in managing their foreign debt, but this practice is still very limited and experimental rather than widespread. El Salvador is the most notable example of a country that has integrated Bitcoin into its financial strategy, including debt repayment. In 2021, El Salvador became the first nation to adopt Bitcoin as legal tender alongside the US dollar. Despite skepticism and concerns about default risks linked to this “Bitcoin bet,” the country successfully paid back $800 million on an external bond, demonstrating that Bitcoin adoption did not prevent it from meeting its debt obligations[1].
El Salvador’s approach involved issuing Eurobonds, which are debt instruments denominated in foreign currency, and then repurchasing some of these bonds as part of a strategy to manage its debt load. The government set specific purchase prices for bonds maturing in 2023 and 2025, totaling $800 million, and completed payments to international creditors. This move was seen as a rebuttal to critics who doubted the viability of using Bitcoin in national finance[1].
Beyond El Salvador, there are discussions and proposals in other countries about leveraging Bitcoin to address national debt challenges, but these remain largely theoretical or in early stages. For example, U.S. Senator Cynthia Lummis has proposed that the United States could build a government-controlled Bitcoin reserve to help ease the nation’s massive $37 trillion debt burden. Her vision involves acquiring and holding a significant portion of Bitcoin supply over decades, potentially using assets already under federal control, such as seized cryptocurrencies, as a starting point. The idea is that the appreciation of Bitcoin’s value could offset a substantial part of the national debt, creating a fiscal reset[2].
However, this proposal is controversial and speculative. It depends heavily on Bitcoin’s price performance and the political will to maintain such a reserve over the long term. Legal frameworks would be necessary to protect the reserve from being dismantled by future administrations, and the volatility of Bitcoin remains a significant risk factor[2].
Other countries have not yet adopted Bitcoin directly for debt repayment but are exploring blockchain technology and tokenization of national debt as a way to improve debt management and transparency. Tokenizing debt means converting debt instruments into digital tokens on a blockchain, which can make lending and repayment processes more efficient and programmable. This could allow governments to automate interest payments and other controls, potentially making debt markets more accessible and liquid[3].
Despite these innovations, Bitcoin itself is not widely used as a direct payment method for foreign debt by countries. The challenges include Bitcoin’s price volatility, regulatory uncertainties, and the fact that most international debt contracts are denominated in stable currencies like the US dollar or euro. Stablecoins, which are cryptocurrencies pegged to stable assets like the US dollar, have gained more traction in global finance and are increasingly holding significant amounts of US Treasuries. Stablecoins now represent a substantial source of demand for US debt, even as foreign central banks reduce their holdings of US Treasuries[6].
The broader financial context shows that Bitcoin’s fixed supply and scarcity appeal to some policymakers and investors as a hedge against inflation and expanding government liabilities. This narrative fuels interest in Bitcoin as a macroeconomic tool, but practical adoption at the sovereign debt level remains limited and experimental[4].
In summary, while El Salvador has demonstrated that a country can use Bitcoin as part of its financial strategy to manage and pay off foreign debt, this is not yet a common practice globally. Other countries and policymakers are exploring the potential of Bitcoin and blockchain technology for debt management, but widespread use of Bitcoin to pay off foreign debt is still in its infancy and faces significant economic, legal, and technical hurdles. Stablecoins and blockchain-based debt tokenization currently play a more prominent role in the evolving landscape of sovereign debt management[1][2][3][4][6].