El Salvador to limit bitcoin activities for $1.4 billion deal with IMF

El Salvador and the International Monetary Fund have reached an agreement for the country to limit domestic bitcoin-related activities in exchange for a financing package.

The IMF’s Extended Fund Facility, which is expected to extend over the course of 40 months, includes a $1.4 billion loan to back El Salvador’s reform agenda and address the country’s balance of payment needs.

With additional financial support expected from the World Bank, the Inter-American Development Bank, and other regional development banks, the total financing package is expected to be worth over $3.5 billion, the IMF said.

“Recognizing El Salvador’s pending macroeconomic and structural challenges, the IMF-supported program aims to strengthen fiscal and external stability and help create the conditions for stronger and more inclusive growth,” IMF wrote in its announcement.

Bitcoin limits

In June 2021, El Salvador became the first country to formally adopt bitcoin as a legal tender, as proposed by its President Nayib Bukele, in order to promote financial inclusion.

The country’s latest deal with the IMF is designed to push policies that significantly diminish the potential risks of El Salvador’s bitcoin project. They include making the acceptance of bitcoin by the private sector voluntary.

This deviates from article 7 of El Salvador’s 2021 Bitcoin Law, which stipulates that “Every economic agent must accept bitcoin as payment when offered to him by whoever acquires a good or service.”

For the public sector, the IMF said that bitcoin-related activities, bitcoin purchases and transactions in bitcoin will be confined. The agency, however, did not provide details on the new limits on bitcoin activities.

Furthermore, the IMF fund will direct El Salvador citizens to pay taxes only in U.S. dollars, and gradually wind down the government’s participation in Chivo, the government-provided bitcoin wallet.

“Transparency, regulation, and supervision of digital assets will be enhanced to safeguard financial stability, consumer and investor protection, and financial integrity,” the IMF said.

Other goals of the IMF's deal with El Salvador include fiscal policies to reduce public debt, increase fiscal transparency and strengthen fiscal and financial reserves.

However, the deal has not been finalized. The IMF Executive Board’s final approval of the agreement is contingent on El Salvador’s implementation of the “agreed prior actions,” the announcement said.

In August this year, El Salvador President Bukele conceded the nation's monetary experiment had mixed results, adding that bitcoin had seen limited domestic adoption.

Meanwhile, El Salvador has accumulated 5,968.77 BTC as of Thursday, worth over $604 million. Bitcoin was trading at $101,215 as of 1:06 a.m. EST, according to The Block’s bitcoin price page.