IMF Says It’s Willing to Overlook Bitcoin Risk in El Salvador Agreement

The International Monetary Fund and El Salvador have reached preliminary understandings to mitigate risks from Bitcoin, improve the country’s fiscal situation, strengthen its financial reserve buffers, and enhance transparency and governance.

In a statement issued Aug. 6, the international body alleged that many potential risks linked to the cryptocurrency “have not yet materialized” but that there was a joint recognition that El Salvador needed to enhance transparency and mitigate risks from the project.

This marks an important departure from previous stances from the IMF regarding Bitcoin in El Salvador.

In late 2021, just a few months after President Nayib Bukele legalized the cryptocurrency, the IMF explicitly urged the country to “not use Bitcoin as legal tender” and instead narrow the scope of the new Bitcoin law.

And until yesterday’s statement, the IMF had always highlighted the need for careful and special analysis regarding Bitcoin in El Salvador, warning of the potential instability it could bring to the country.

Although the cause of this slight change in attitude towards Bitcoin in El Salvador is unclear, it is a telling sign that the IMF is now broadening its acceptance of cryptocurrencies.

In February this year, Tobias Adrian, Director of the Monetary and Capital Markets Department of the IMF, wrote about the “changing landscape of crypto assets” and how crypto markets do not currently pose a risk to financial stability in most markets.

Bukele’s move hampered El Salvador’s 2022 request for a $1.3 billion IMF loan, citing concerns over Bitcoin’s alleged risks to the financial system. Since then, Bukele has followed through with his promise to add 1 BTC per day while the IMF slowly reverses its stance.

Even though no details were publicly available to scrutinize what sort of policies the IMF wants to implement, the wording and alleged interest in mapping out a plan despite Bitcoin’s legal standing in the country suggest a promising turn of events.

According to the Aug. 6 statement, the IMF will also help improve the nation’s primary balance to around 3.5% of the gross domestic product (GDP) over a three-year period, strengthening El Salvador’s reserve buffers by reducing reliance on domestic funding and transitioning to receiving support from the IMF and other development banks.