The International Monetary Fund (IMF) and El Salvador have reached a staff-level agreement for a 40-month, $1.4 billion Extended Fund Facility (EFF) arrangement. While the agreement primarily targets fiscal consolidation, governance improvements, and economic stability, it also includes measures addressing the risks associated with El Salvador’s Bitcoin policies.

El Salvador’s use of Bitcoin has been a controversial topic since its adoption as legal tender in September 2021. Under the new IMF-supported program, the government plans to mitigate Bitcoin-related risks by making its use voluntary in the private sector.

Public sector involvement in Bitcoin transactions will be significantly reduced, with legal reforms to confine the government’s participation. This includes the gradual unwinding of the government’s involvement with Chivo, the state-run Bitcoin wallet.

Additionally, taxes will only be payable in US dollars, reinforcing the continued use of the country’s primary currency for fiscal operations.

The agreement emphasizes enhancing transparency, regulation, and supervision of digital assets. The goal is to safeguard financial stability and ensure consumer and investor protection. The IMF notes that these measures align with its broader policy framework on digital assets, reflecting concerns over potential financial integrity and systemic risks associated with cryptocurrencies.

El Salvador’s embrace of Bitcoin as legal tender drew international criticism and skepticism, particularly from organizations like the IMF, which previously raised concerns about its impact on fiscal health and financial stability. The new arrangement appears to mark a strategic shift by the Salvadoran government, aiming to balance innovation with caution.

While the reforms aim to address these risks, the agreement stops short of reversing Bitcoin’s legal status. Instead, it focuses on voluntary adoption and curbing public sector involvement.