- The International Monetary Fund (IMF) has called for El Salvador to strengthen its regulations around Bitcoin
- The IMF has had a rocky relationship with El Salvador ever since its implementation of Bitcoin in 2021
- It seems that the country needs to change its policies if it wants IMF money
The International Monetary Fund (IMF) has asked El Salvador to strengthen its regulations around the country’s use of Bitcoin as part of a funding program. The institution sees “narrowing of the scope of the bitcoin law” as a key facet of any deal the two might come to over a lending package. El Salvador has had run-ins in the past with the IMF over its Bitcoin plans, but it seems that President Nayib Bukele may have to dial back the nation’s Bitcoin-centric approach if he wants IMF support.
El Salvador’s Rocky Relationship With the IMF
El Salvador’s history with the IMF changed dramatically in 2021 when the small Central American nation became the first country to adopt Bitcoin as legal tender. The decision, championed by President Bukele, was seen as a bold move toward financial innovation, but it also sparked a complex relationship with international financial institutions, especially the IMF.
For decades, El Salvador’s economy has faced challenges, including high public debt, slow growth, and heavy reliance on remittances. The IMF, like many developing countries, has been involved in providing financial support and technical advice to stabilize the economy. Historically, this relationship has followed a typical path of loan agreements conditioned on fiscal discipline and structural reforms. However, the adoption of Bitcoin marked a sharp deviation from the IMF’s traditional economic frameworks.
“Bitcoin Law” May be Tweaked
When El Salvador passed the “Bitcoin Law” in June 2021, the government promoted it as a means to boost financial inclusion, reduce remittance costs, and stimulate economic growth by attracting foreign investment. President Bukele argued that using Bitcoin could empower citizens by providing them access to digital wallets, particularly in a country where a significant portion of the population lacked access to formal banking services.
The IMF, however, expressed immediate concerns. In multiple reports, the IMF warned that adopting Bitcoin posed significant risks to El Salvador’s economy, particularly regarding financial stability, consumer protection, and the potential for money laundering. The IMF emphasized that the volatility of Bitcoin could undermine public finances and complicate the nation’s debt management efforts. Moreover, the IMF cautioned that Bitcoin’s role as legal tender could discourage traditional financial institutions from working with the country.
It seems, however, that Bukele has had to alter his approach. Program talks between the IMF and El Salvador have focused on strengthening reforms and tackling risks arising from the use of Bitcoin in the country, as IMF spokesperson Julie Kozack said in a press conference yesterday:
What we have recommended is a narrowing of the scope of the bitcoin law, strengthening the regulatory framework and oversight of the bitcoin ecosystem, and limiting public sector exposure to bitcoin.
Kozack added that El Salvador’s 2025 budget proposal represents a step in the right direction, but El Salvador will likely have to show commitment to its pledges before any deal with the IMF can be approved.
