El Salvador Reforms Bitcoin Law to Secure IMF Loan Agreement

El Salvador’s Legislative Assembly has passed significant reforms to the nation’s 2021 Bitcoin Law, effectively ending the mandatory acceptance of the digital asset by merchants [2]. The legislative changes were a core requirement for the country to secure a $1.4 billion loan agreement with the International Monetary Fund (IMF) aimed at strengthening fiscal sustainability [2].

Key takeaways

• The government has removed the legal requirement for businesses to accept Bitcoin, making its use entirely voluntary [2].
• The state-run Chivo Wallet infrastructure is being phased out as part of an effort to limit public sector involvement in Bitcoin activities [4].
• References to Bitcoin as legal tender have been removed from the law, and citizens can no longer use the asset to pay taxes [2].
• Despite the regulatory shift, the government continues to hold Bitcoin reserves and maintains an interest in long-term digital asset strategies [2].

Shifting the Regulatory Framework

The recent legislative updates, approved by 55 votes in the Legislative Assembly, represent a major departure from the original 2021 framework [2]. Under the revised law, Bitcoin is no longer classified as currency, though it remains a recognized payment method exempt from capital gains tax [4]. By repealing articles that mandated Bitcoin-to-dollar convertibility and tax payments in Bitcoin, the government has moved to align its financial policies with IMF demands [2].

The IMF has long expressed concerns regarding El Salvador’s Bitcoin project, citing risks related to fiscal contingencies, consumer protection, and governance [3]. A report from the organization noted that, despite significant public spending to subsidize transaction costs, the use of Bitcoin for financial inclusion has remained minimal [3]. Recent surveys cited by local media support these findings, indicating that 92% of the population did not use Bitcoin for transactions in 2024 [2].

Future of the Bitcoin Experiment

While the state is retreating from its role as a primary facilitator of Bitcoin infrastructure, the administration of President Nayib Bukele has signaled that it will not abandon the asset entirely [2]. The government recently expanded its Bitcoin reserves and continues to leverage the asset for debt management, having used gains from price surges to repurchase national debt [2].

The transition has created a sense of uncertainty among some international Bitcoin advocates who relocated to the country following the 2021 law [4]. However, the nation remains a hub for some crypto-related entities; for instance, stablecoin issuer Tether has relocated to El Salvador after securing a license [2]. As the government begins the process of unwinding the Chivo Wallet, the focus shifts to how the private sector will manage Bitcoin adoption without state-backed infrastructure [4]. The IMF board approved the loan on February 26, with an initial disbursement of approximately $113 million already authorized [4].