El Salvador has reached a preliminary agreement with the International Monetary Fund (IMF) to limit its domestic Bitcoin activities in exchange for a $1.4 billion financing package. The deal is part of the IMF’s Extended Fund Facility (EFF), spanning 40 months, aimed at supporting the country’s reform agenda and addressing balance-of-payment challenges.
The financing package is expected to exceed $3.5 billion, with contributions from the World Bank, the Inter-American Development Bank, and other regional development banks, according to the IMF.
Policy Shifts on Bitcoin
El Salvador, under President Nayib Bukele, became the first country to adopt Bitcoin as legal tender in June 2021, aiming to promote financial inclusion. However, the new deal with the IMF seeks to curb potential risks associated with the nation’s Bitcoin project.
Key measures include:
- Voluntary Bitcoin Acceptance: Private sector businesses will no longer be mandated to accept Bitcoin as payment, a deviation from the 2021 Bitcoin Law that required all economic agents to accept Bitcoin.
- Public Sector Restrictions: The government will confine its Bitcoin-related activities, purchases, and transactions.
- Tax Payments in USD Only: Citizens will be required to pay taxes exclusively in U.S. dollars.
- Winding Down Chivo: The government will gradually reduce its involvement in Chivo, the state-operated Bitcoin wallet.
The IMF emphasized that regulations around digital assets would be enhanced to promote transparency, safeguard financial stability, and protect consumers and investors.
Broader Reform Goals
The deal also includes fiscal reforms aimed at:
- Reducing public debt.
- Increasing fiscal transparency.
- Strengthening financial reserves.
Pending Final Approval
The agreement is conditional on El Salvador’s implementation of the agreed-upon measures. Final approval will be granted by the IMF’s Executive Board after reviewing the country’s compliance.
Bitcoin Experiment Under Scrutiny
President Bukele acknowledged in August that the adoption of Bitcoin had yielded mixed results, with limited domestic uptake. Despite this, El Salvador has amassed 5,968.77 BTC, worth approximately $604 million as of December 19, with Bitcoin trading at $101,215.
The IMF-backed program aims to address lingering economic and structural challenges while easing El Salvador’s financial strain, though the restrictions on Bitcoin activities mark a significant pivot in the country’s crypto experiment.
