El Salvador’s ambitious Bitcoin experiment has reached a critical juncture. The International Monetary Fund (IMF) has asked the Central American country to suspend its Bitcoin holdings, both in the form of purchases and mining, as part of an effort to stabilize the economy as a whole. In its recent Staff Country Report, the IMF mapped out policy adjustments that included dismantling the trust fund in Bitcoin and more openness regarding the government’s cryptocurrency activities.
These suggestions are made as El Salvador struggles with high budget deficits, high national debt, and persistent macroeconomic imbalances. In spite of encouraging improvements in security, tourism, and other areas, the IMF cautions that the fiscal well-being of the country needs immediate attention.
A New Era of Compliance
President Nayib Bukele, who was a vocal supporter of Bitcoin, changed direction in the past several months. A self-proclaimed early adopter and stone-thrower at the conventional financial establishment, Bukele now agreed to the conditions of the IMF. This involves stopping all public bitcoin-related activities and modifying the Bitcoin Law, which initially legalized Bitcoin as legal tender in El Salvador.
Based on the IMF, the Bukele government is currently prioritizing solving structural problems and achieving economic growth with the support of a program-backed by the fund. The $1.4 billion in financial aid from the IMF may unchain another $3.5 billion from institutions such as the World Bank and Inter-American Development Bank.
Limitations on Bitcoin Bonds and Trust Fund
Among the IMF’s major requirements is the dissolution of Fidebitcoin, the trust fund established to buy Bitcoin. The government should also submit audited financial reports for Chivo, its government-owned Bitcoin wallet app, by mid-2025. The audit should be carried out by an independent auditor with expertise in crypto.
In addition, the IMF has turned down proposals for Bitcoin-backed bonds, originally intended to finance mining equipment and the ambitious Bitcoin City project. The fund categorically forbids El Salvador from issuing or guaranteeing any debt or financial instruments denominated in Bitcoin.
What’s Next for El Salvador?
The IMF requires the country to complete its policy reforms by December 2025. El Salvador is required to report by March 2025 the overall holdings of Bitcoin that the government maintains and name all parties that engage in its handling. The efforts are subject to a second review in June 2025.
This policy change is a far cry from El Salvador’s previous embrace of cryptocurrency. With the Bukele government falling in line with IMF recommendations, the nation’s narrative about Bitcoin is dramatically changing. Whether this change will stabilize the economy or harm El Salvador’s image as a crypto leader only time will tell.
The next few months will be critical, as El Salvador teeters on the tightrope between innovation and economic pragmatism.
