El Salvador Removes Bitcoin's Legal Tender Status, Citing IMF Agreement

El Salvador's Legislative Assembly has approved major changes to its Bitcoin Law, significantly reducing state involvement in cryptocurrency transactions.

El Salvador’s Legislative Assembly has approved major amendments to its Bitcoin Law, reducing the state’s involvement in cryptocurrency transactions. The changes eliminate Bitcoin’s legal tender status, remove state-backed infrastructure, and make BTC acceptance optional for businesses.

With 55 votes in favor, lawmakers repealed Article 7, which mandated businesses to accept Bitcoin (BTC) as payment. The reforms also eliminate state-run Bitcoin infrastructure, including the government-backed Chivo Wallet, and remove provisions allowing tax payments in BTC.

“With 55 votes in favor, we reform the Bitcoin Law to improve its applicability,”

the Legislative Assembly announced.

The government’s decision aligns with a $1.4 billion loan agreement with the International Monetary Fund (IMF). The new policy requires government debt obligations to be settled in the original contracted currency, reducing Bitcoin’s role in national financial operations.

The IMF-backed loan agreement influenced El Salvador’s decision to scale back Bitcoin-related mandates. In December 2023, the government agreed to limit its involvement in Bitcoin transactions as part of its fiscal restructuring plan.

A recent survey highlighted the declining use of Bitcoin in the country. Reports showed that 92% of Salvadorans did not use Bitcoin for transactions in 2024, marking its lowest adoption rate since 2021.

“Various studies by reputable pollsters in El Salvador have indicated that 92% of the population did not use Bitcoin in 2024,”

the report stated.

Despite reducing state-backed Bitcoin infrastructure, El Salvador continues accumulating Bitcoin. A week before passing the reforms, the government expanded its BTC reserves. The country is also exploring opportunities to acquire discounted BTC from the U.S. government’s planned $6.7 billion Bitcoin sale.

While the state is reducing its role in Bitcoin transactions, it continues to hold and acquire BTC. The government has leveraged Bitcoin price surges to manage debt repayments and strengthen fiscal stability.

In late 2024, El Salvador used BTC gains to repurchase national debt, improving its financial position. President Nayib Bukele addressed this in a statement:

“We promised to eliminate the Political Debt. People complained to us that we had not yet fulfilled our promise. It took us a while, but we listened to the people, and today we are delivering. No more financing of political parties with the people’s money,”

Bukele wrote on X.

Crypto Companies Continue Expanding in El Salvador

Despite reduced state involvement, crypto firms are still investing in El Salvador. Tether, the stablecoin issuer, recently relocated to the country after securing a major license. CEO Paolo Ardoino shared his perspective on the company’s decision:

“Today a meeting that will change the course of history happened. Great minds around a table in El Salvador,”

Ardoino posted on X.

Additionally, video platform Rumble is reportedly considering moving operations to El Salvador, adding to the country’s appeal as a crypto hub.