Progress in IMF and El Salvador’s Bitcoin Negotiations

El Salvador and the International Monetary Fund (IMF) have made significant strides in negotiations surrounding Bitcoin policy and economic reforms, all while seeking a $1.4 billion loan package.

Key Takeaways

El Salvador and the IMF are progressing in negotiations over Bitcoin policy, linked to a $1.4 billion loan.
Discussions include the divestment of the Chivo wallet and enhancing transparency in Bitcoin-related matters.
The IMF has expressed concerns about Bitcoin's impact on financial stability since the currency’s adoption in 2021.
A staff-level agreement in late 2024 allowed El Salvador to modify its Bitcoin stance for funding access.
El Salvador’s recent economic growth is attributed to remittances, investment, and improved confidence, with projected GDP growth of 4% this year.

IMF and El Salvador continue negotiations over Bitcoin risks.

The ongoing discussions between El Salvador and the IMF aim to refine the country’s approach to Bitcoin and advance economic reforms. By addressing the government-run Chivo wallet’s divestment, both parties are working towards strengthening financial stability and transparency in the crypto market.

Ongoing Negotiations with the IMF

According to an official announcement released on December 23, the negotiations between El Salvador and the IMF regarding the sale of the government-operated Chivo wallet, along with an overarching discussion on the Bitcoin initiative, have "well advanced." The IMF's Mission Chief for El Salvador noted, “Negotiations for the sale of the government e-wallet Chivo are well advanced, and discussions concerning the Bitcoin project continue, centered on enhancing transparency, safeguarding public resources, and mitigating risks.”

These discussions have extended over several months as El Salvador aims to unlock the next funding tranche available under the IMF program, designed to bolster its economy.

For context, El Salvador first sought a multi-billion-dollar Extended Fund Facility from the IMF in early 2021. However, negotiations stalled when the country declared Bitcoin as legal tender later that same year.

IMF Concerns and Agreements

The IMF promptly cautioned that using a volatile cryptocurrency as official currency posed considerable risks to financial stability, government finances, and consumer protection. Over the ensuing years, the institution consistently urged the administration led by President Bukele to abandon Bitcoin’s legal tender status as a prerequisite for further funding discussions.

After extensive negotiations lasting almost four years, El Salvador and the IMF reached a staff-level agreement in late 2024, which permitted the country to dial back its Bitcoin strategy in return for access to the $1.4 billion in loans. Under this agreement, El Salvador consented to make Bitcoin acceptance optional for businesses and reduce its direct public-sector engagement with cryptocurrency, including tax payments and its role in crypto infrastructure.

Current Economic Indicators

Recently, the IMF confirmed that risks associated with Bitcoin are being effectively managed. In its latest report, the IMF acknowledged El Salvador’s commitment to reforms, projecting a GDP growth of 4% for the year. The IMF stated, “The economy is expanding at a faster than anticipated pace due to improved confidence, record remittances, and robust investment. Real GDP growth is projected to reach around 4 percent this year, with promising prospects for next year.”

Meanwhile, El Salvador has been increasing its Bitcoin reserves, having recently concluded its largest acquisition, purchasing 1,090 Bitcoin in a single day. As of now, the country holds a total of 7,475.4 BTC, roughly valued at $653.38 million according to Bitbo's current market data.

Furthermore, in August, El Salvador enacted a new Investment Banking Law that facilitates specialized firms to offer Bitcoin and digital assets as part of their core financial services. The government continues to brand the country as a global crypto hub, attracting companies like Tether, the issuer of USDT, which recently shifted its headquarters to San Salvador, El Salvador.