El Salvador makes Bitcoin use optional in $1.4B IMF deal.

As part of the deal, the Central American nation will adopt measures to reduce its debt-to-GDP ratio and scale back its involvement in Bitcoin-related activities, marking a significant shift in its approach to the cryptocurrency.

Key aspects of the agreement include making Bitcoin acceptance by private businesses voluntary rather than mandatory and limiting public sector participation in Bitcoin-related economic activities. Additionally, the state-backed Chivo wallet will see a gradual reduction in government involvement, and taxes will only be payable in U.S. dollars, the country’s official currency.

El Salvador made headlines in 2021 when it became the first country in the world to adopt Bitcoin as legal tender under President Nayib Bukele’s administration. However, the IMF has consistently criticized the decision, citing the speculative nature of Bitcoin and its potential risks to the nation’s financial stability. In line with IMF policies, legal reforms under the new agreement aim to "significantly diminish" these risks.

"The potential risks of the Bitcoin project will be diminished significantly in line with Fund policies," the IMF stated in a press release on Dec. 18. It emphasized that Bitcoin acceptance in the private sector will now be voluntary and the public sector’s engagement in Bitcoin transactions and purchases will be confined.

The government’s Bitcoin holdings, currently amounting to 5,968.8 BTC (valued at approximately $602 million), are unlikely to grow further under the new framework.

President Bukele’s ambitious Bitcoin initiative has faced both international scrutiny and domestic disinterest. Surveys indicate that Bitcoin adoption among Salvadorans remains low, with 92% of respondents in October 2024 reporting they do not use Bitcoin for transactions, an increase from 88% in 2023.

Max Keiser, a Bitcoin advisor to Bukele, dismissed the IMF’s conditions as “bureaucratic, meaningless nonsense” in a post on X (formerly Twitter). He argued that Bitcoin use in El Salvador was always voluntary and that adoption continues to grow, contrary to survey findings.

The agreement with the IMF concludes four years of negotiations that were complicated by El Salvador's Bitcoin policies. The loan deal, pending IMF Executive Board approval, is part of a larger financing package exceeding $3.5 billion, which includes contributions from other global financial institutions like the World Bank.

The IMF's insistence on reduced Bitcoin integration reflects its broader concerns about the cryptocurrency's volatility and speculative risks. For El Salvador, this marks a pragmatic shift from its earlier pro-crypto stance to a more balanced fiscal approach aimed at securing international financial support.