El Salvador and the IMF Reach a Deal to Mitigate Bitcoin Risks

The IMF said in a statement Wednesday that in exchange for the financial-aid program to support the government’s economic overhaul agenda, the government agreed to implement measures to mitigate bitcoin-related risks.

El Salvador agreed to implement measures to mitigate bitcoin-related risks in exchange for an International Monetary Fund financial-aid program to support the government's economic overhaul agenda, the IMF said in a statement Wednesday.

The agreement follows the government's decision in 2021 to adopt bitcoin as legal tender, a move that stalled financial support from the IMF amid concerns over the crypto asset's volatility and potential impact on the finances of the impoverished and indebted Central American nation.

The government's bitcoin policy, which was met with enthusiasm from crypto proponents, faced skepticism from economists and financial institutions over its hasty implementation and lack of consultation with relevant stakeholders.

Surveys indicate that the use of bitcoin as a national currency in the country of around 6.5 million didn't take off. Despite the government spending more than $200 million in 2021 on rolling out bitcoin ATMs and an e-wallet with $30 of free bitcoin for anyone who signed up, most users used the virtual currency to buy goods or exchange it for dollars.

The government also began purchasing bitcoin when it was trading at about $30,000, initially booking losses but later posting significant gains as the volatile crypto asset's price soared to over $100,000 recently.

Among the concessions made by the Bukele administration, acceptance of bitcoin by the country's businesses will no longer be mandatory, while the public sector's participation in bitcoin-related activities will be restricted, the IMF said.

“The potential risks of the bitcoin project will be diminished significantly" in line with fund policies, the IMF said.

Under the agreement, El Salvador's government agreed to reduce bitcoin purchases, and it will no longer accept tax payments with the crypto asset. The government's participation in Chivo, the crypto e-wallet launched in 2021, will be gradually unwound, the IMF said.

“Transparency, regulation, and supervision of digital assets will be enhanced to safeguard financial stability, consumer and investor protection, and financial integrity," it added.

Bukele highlighted on X the IMF's remarks about the steady expansion of the country's economy since the pandemic, bolstered by “robust remittances and a remarkable pickup in tourism," in the midst of improvements in public security.