- The International Monetary Fund (IMF) has approved a 40-month, $1.4 billion loan for El Salvador, contingent upon these Bitcoin regulatory changes
- El Salvador has amended its Bitcoin Law, revoking Bitcoin’s status as legal tender and making its use optional for private entities
- The agreement includes conditions such as prohibiting new Bitcoin acquisitions by public sector entities and enhancing transparency in cryptocurrency transactions
In a significant policy shift, El Salvador has amended its Bitcoin Law, revoking Bitcoin’s status as legal tender and making its use optional for private entities. This move aligns with the requirements set by the International Monetary Fund (IMF), which has approved a 40-month, $1.4 billion Extended Fund Facility (EFF) for the country. The agreement, which follows on from tweaks made three months ago, imposes conditions aimed at mitigating risks associated with Bitcoin adoption and enhancing financial transparency.
Four-year Experiment Being Gradually Rolled Back
El Salvador’s headline-grabbing move to make Bitcoin legal tender took place in June 2021, a decision that the IMF heavily criticized at the time. It has continued to urge El Salvador to rescind its decision, and nearly four years later, it has finally gotten its way; as part of the loan agreement with the body, El Salvador’s Legislative Assembly has passed amendments to the Bitcoin Law, eliminating the obligation for businesses to accept Bitcoin as a form of payment.
The IMF’s Executive Board approved the 40-month EFF arrangement at the end of February, providing El Salvador with access to approximately $1.4 billion to address macroeconomic imbalances and strengthen governance and transparency to boost the country’s growth prospects and resilience. However, a key component of the agreement is the mitigation of risks arising from the country’s Bitcoin project:
[The program] addresses risks arising from the Bitcoin project, including by making acceptance of Bitcoin voluntary and by confining public sector engagement in Bitcoin-related activities and transactions in and purchases of Bitcoins.
The revised law clarifies the legal nature of Bitcoin, removing its essential features as legal tender and making its acceptance by the private sector voluntary. Additionally, tax payments are now mandated to be made exclusively in U.S. dollars.
Restrictions on Public Sector Bitcoin Activities
The IMF agreement imposes specific restrictions on public sector involvement in Bitcoin. Public sector entities are prohibited from engaging in new Bitcoin-related economic activities, transactions, or purchases. The agreement also mandates the liquidation of the Fidebitcoin trust fund by July 2025 and the termination of government participation in the Chivo wallet system. These measures aim to limit the government’s exposure to Bitcoin’s volatility and potential financial risks.
To bolster financial transparency, the agreement also requires the publication of all government Bitcoin wallet addresses and audited financial statements for crypto-related entities. This initiative seeks to improve oversight and accountability in cryptocurrency transactions involving public funds. The IMF highlighted that the program includes “actions to strengthen fiscal transparency and anti-corruption and Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) frameworks.”
These developments all but reverse the key concepts around El Salvador’s Bitcoin adoption in 2021, suggesting that its experiment is going to go the way of all other attempts to adopt cryptocurrency on a large scale.
