IMF Recommends Narrowing Bitcoin Legislation in El Salvador

The International Monetary Fund (IMF) has reiterated its recommendation for El Salvador to narrow the scope of its bitcoin legislation and adoption.

Julie Kozack, director of communications at the IMF, spoke at a press briefing on Thursday, indicating that the IMF maintains ongoing engagement with Salvadoran authorities. She emphasized that addressing the risks associated with bitcoin is a crucial aspect of their discussions.

> “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 public sector exposure to bitcoin,” Kozack added.

Kozack stated that the IMF aims to reach an agreement with El Salvador on a new program supported by the IMF, which would assist in macroeconomic stabilization, adjustment, and implementing growth-enhancing reforms.

The IMF's recommendation follows an August statement specifically addressing El Salvador’s fiscal issues, with bitcoin being a critical agenda item. The organization noted, “Progress has been made in the negotiations toward a Fund-supported program, focused on policies to strengthen public finances, boost bank reserve buffers, improve governance and transparency, and mitigate the risks from bitcoin.”

El Salvador's bitcoin law took effect in September 2021, making it the first country to adopt bitcoin as an alternative legal tender. The IMF seeks to work with Salvadoran authorities to stabilize the nation’s economy, including proposals to manage bitcoin-related risks.

> “On bitcoin, while many of the risks have not yet materialized, there is joint recognition that further efforts are needed to enhance transparency and mitigate potential fiscal and financial stability risks from the Bitcoin project. Additional discussions in this and other key areas remain necessary,” the IMF stated in August.

In August, Nayib Bukele, the president of El Salvador who enacted the bill legalizing bitcoin, acknowledged that the monetary experiment has yielded mixed results. He mentioned that bitcoin has seen limited domestic adoption but is still considered a “net positive” for the country.