El Salvador's Bitcoin Pivot: A New Reform After IMF Deal

El Salvador's lawmakers are rushing to implement a new bitcoin reform following a staff-level agreement with the International Monetary Fund (IMF) for a $1.4 billion Extended Fund Facility (EFF) arrangement. The agreement, reached on January 30, 2025, aims to address the country's fiscal challenges while supporting economic reforms and long-term growth. The new bitcoin reform is a significant shift in El Salvador's crypto policies, making bitcoin acceptance voluntary and reducing government involvement in the Chivo wallet program.



The new bitcoin reform in El Salvador includes several key changes:

1. Voluntary Bitcoin Acceptance: The reform makes bitcoin acceptance voluntary for the private sector, allowing businesses to choose whether or not to accept bitcoin as a means of payment. This change addresses concerns about bitcoin's volatility and risks, as businesses can now decide whether to expose themselves to price fluctuations.
2. Reduced Government Involvement: The government plans to reduce its involvement with the state wallet, Chivo. This change could help address concerns about government overreach and potential misuse of funds. The government will also gradually unwind its role in the Chivo digital wallet program, which has seen limited long-term adoption.
3. Fiscal Reforms: The agreement includes significant fiscal reforms, such as reducing the fiscal deficit by 3.5% points of GDP over three years. This will help improve the country's public finances and promote sustainable development. The deal also anticipates additional financing of $3.5 billion from the World Bank and regional development banks to support the country's economic reforms.
4. Taxes in US Dollars: Taxes will be payable exclusively in US dollars, which could help stabilize the country's economy and reduce the impact of bitcoin's volatility on public finances. This change aligns with the IMF's concerns about bitcoin's risks and the need for a stable currency for tax payments.

The new bitcoin reform in El Salvador is a significant shift in the country's crypto policies, addressing concerns about bitcoin's volatility and risks while promoting fiscal stability and sustainable development. While the reform reduces the government's role in promoting bitcoin, it does not directly address financial inclusion, which could still be supported by the continued use of the Chivo wallet and bitcoin for remittances.

In conclusion, El Salvador's new bitcoin reform, following the IMF deal, aims to address concerns about bitcoin's volatility and risks, improve public finances, and promote financial stability. While it reduces the government's role in promoting bitcoin, it does not directly address financial inclusion, which could still be supported by the continued use of the Chivo wallet and bitcoin for remittances. The reform is a significant step in El Salvador's efforts to balance economic modernization with financial stability.