El Salvador to Roll Back Bitcoin Project Under IMF Agreement

The International Monetary Fund (IMF) said Wednesday (Dec. 18) that El Salvador will alter its bitcoin project as part of a staff-level agreement on a $1.4 billion Extended Fund Facility (EFF).

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“The potential risks of the Bitcoin project will be diminished significantly in line with Fund policies,” the organization said in a Wednesday press release.

As part of the agreement, the acceptance of bitcoin by the private sector will be voluntary, the participation of the public sector in bitcoin-related activities will be “confined,” and the government’s participation in the Chivo crypto eWallet will be gradually ended, according to the release.

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

Other elements of the program include El Salvador reducing the ratio of public debt to GDP; strengthening fiscal transparency, governance and resilience; and enhancing fiscal and financial sector buffers, per the release.

The agreement is subject to approval by the IMF executive board, the release said. The board is expected to consider the program by early February.

El Salvador became the world’s first country to accept bitcoin as legal tender on Sept. 7, 2021, with bitcoin being accepted like cash and working in conjunction with the U.S. dollar, PYMNTS reported at the time.

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When announcing the law in June 2021, President Nayib Bukele said he expected that adopting bitcoin as legal currency would help boost job creation and bring about financial inclusion.

The country also launched the Chivo digital wallet with $30 for each resident who downloaded it.

One year into the bitcoin experiment, in September 2022, there was an impasse between the Bukele administration and the IMF, which had refused to continue discussing a planned $1.3 billion loan that would have allowed the country to pay off a $1 billion Eurobond payment.

Bitcoin use didn’t take off among the people of El Salvador, The Wall Street Journal (WSJ) reported Wednesday. When the government spent more than $200 million on its 2001 rollout of the digital wallet with $30 of free bitcoin, most people used it to buy goods or exchange for dollars, according to the report.