IMF Pushes El Salvador To Narrow Bitcoin Law For Funding

The International Monetary Fund stated that if El Salvador doesn’t get rid of its Bitcoin law, which made bitcoin legal tender in the country, it should at least “narrow the scope” of the regulation to receive the resources from the fund it seeks.

El Salvador made bitcoin legal tender in 2021, and since that moment, the IMF has been criticizing and opposing this decision. Now, they come with a different approach: equally against bitcoin but with a less challenging claim.

“What we have recommended is a narrowing of the scope of the Bitcoin law, strengthening the regulatory framework and oversight of the Bitcoin ecosystem and limiting the public sector exposure to bitcoin,” the IMF’s Director of Communications Department Julie Kozack explained in a press briefing on October 3.

The Central American country not only declared bitcoin legal tender but also created regulations regarding digital assets in general, and have been accumulating bitcoin. Right now, El Salvador sits on 5,892.76 BTC, adding 1 BTC daily to its treasury as a public policy since November 2022. President Nayib Bukele announced this strategy through his X account.

Even being an important demand from the IMF, the new comments underscore the shift in the fund’s narrative. In 2021, its representatives called for the full abolition of the law. The idea is that the country should limit the influence of bitcoin, especially in the public sector, as Kozack stated. That’s a change.

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“Bitcoin is a mimetic money machine. If the IMF and the other fiat supranationals do not accumulate a stash, they will go extinct,” said the Bitcoin analyst and Adamant Research founder Tuur Demeester through his X account, implying that, in the end, organizations like the IMF might be forced to accumulate Bitcoin.

Despite looking for resources, El Salvador’s president announced that the national budget 2025 won’t include the issuance of new debt, so they may be prepared for not receiving new funds from the IMF. The conversations continue, and now it’s time for the El Salvador administration to choose if they prefer the fund way or keep on track with their Bitcoin strategy.

The country has been exploring the possibility of issuing bonds related to Bitcoin, known as the Volcano Bonds, since 2021, so there are alternatives to finance the funding needed.

Bitcoin Advocates In El Salvador Respond

"​​The IMF's incentives are not aligned with El Salvador's, and El Salvador should forge its own path, independent of IMF interests," educational NGO Mi Primer Bitcoin founder John Dennehy told me in an interview. He was among the first American citizens to move to El Salvador, inspired by the Bitcoin Law, and his NGO is the Bitcoin education leader in the country.

For him, it was a "very beneficial move to defy their previous advice regarding bitcoin." And this is no different. For Dennehy, the bitcoin play has been "a massive positive" for El Salvador. "The nation's exposure is relatively small—they are purchasing 1 BTC per day, which, even for a small nation like El Salvador, is a tiny percentage of their budget. Though the biggest benefit may be how the bitcoin policy has helped change the narrative around the nation".

Dennehy argued that the shift in the country's perception is also related to bitcoin. "El Salvador was either ignored internationally or known for gang violence. The shift away from that has been dramatic, positive, and had a lot to do with the bitcoin policy", he explained.

For Little Hodler's creator, and El Salvador's resident, Lina Seiche, "El Salvador's future doesn't hinge on Bitcoin." She recalls that Bukele has mentioned several times that he has no intention of selling the BTC acquired. "These funds aren't meant to be used for short-term projects," she detailed.

After over three years of adopting bitcoin, this decision is "an absolute net positive for the country. It brought international attention, tourism, and investment, giving El Salvador the irrevocable title of first mover. The Bitcoin Law is only one among many examples of an administration intent on moving forward rather than getting stuck in the old ways for fear of change", Seiche underscored.

We contacted several organizations related to the El Salvador government but had yet to receive an answer by the time of this publication.