For the small countries with small economies, their local currencies are themselves already quite volatile, so either they choose to live with it, and control the money flow out of the country so that the local currencies wil not depreciate too much, or they have to peg their local currencies against a stronger currency, like USD or EUR. El Salvador is no exception, but instead of pegging it against a Fiat currency, they choose to peg it against bitcoin. No matter what, they lose the ability to adjust their exchange rate the moment they make the decision, regardless of what to peg against. The difference is that, while Fiat currencies have basically limitless supply (central banks can always print more money), bitcoin supply is capped at 21 million maximum. With limited supply, the price will be solely decided by the demand, and with countries holding reserves in bitcoin and institutions start converting balance sheets into bitcoin, the equilibrium price will trend higher. Reserves are normally held for the long term, as are companies’ long term assets.

So unless everyone suddenly decides to sell all their bitcoin holdings, the price will not fluctuate by too much. Yes, it’s still very volatile, but it has become more and more stable. Besides, most of the countries invest their reserves so that they can grow the money pool over time. El Salvador does that same when using reserves to buy bitcoin. It’s just another investment, albeit with higher risk. In summary, as crypto acceptance increases, more values will be locked in crypto assets, with bitcoin taking the lion share, and every dollar poured into it will help make it more stable and increase traction, so there is less risk of it disappearing overnight.