International Monetary Fund (IMF) Agrees on $120M Loan with El Salvador, Causing Turmoil in Cryptocurrency Sphere

International Monetary Fund (IMF) Agrees on $120M Loan with El Salvador, Causing Turmoil in Cryptocurrency Sphere

The International Monetary Fund (IMF) has announced its decision to provide El Salvador with a substantial portion of a larger $1.4 billion loan, contingent on the nation's commitment to Bitcoin-related reforms and fiscal responsibility. These reforms aim to help stabilize El Salvador's economy and encourage financial transparency.

However, the decision comes with conditions. Before receiving further funds, El Salvador must halt the expansion of its government-held Bitcoin and unwind the public sector's involvement with the Chivo wallet by July. Despite the IMF's conditions, El Salvador continues daily Bitcoin purchases, raising questions over compliance and governance.

The IMF's decision marks a turning point in the relationship between international financial institutions and El Salvador's experimental foray into adopting Bitcoin as legal tender. El Salvador's decision in 2021 was a global first and has been heavily criticized due to concerns about the cryptocurrency's impact on fiscal stability and regulatory oversight.

The IMF's conditions reflect its wariness towards Bitcoin's volatility and potential consequences on the stability of El Salvador's economy. These concerns stem from uncertainties about Bitcoin's price fluctuations and the lack of clear regulatory frameworks. To mitigate possible financial weaknesses and regulatory risks, the IMF is pushing for the halting of Bitcoin accumulation and separating government wallets from the Chivo payment system.

However, El Salvador's administration, led by President Nayib Bukele, remains determined to pursue its crypto ambitions. According to reports, the government continues its daily Bitcoin purchases, despite the looming IMF restrictions. The country's Bitcoin reserves have surpassed 6,190 BTC as of late May 2025, generating substantial unrealized gains of around $386 million.

The Chivo wallet plays a significant role in El Salvador's crypto economy. Initially launched to attract more users and businesses to adopt Bitcoin, the Chivo wallet has faced operational challenges and regulatory scrutiny. In line with the IMF's guidelines, El Salvador must phase out the public sector's involvement in the Chivo wallet by July.

Fiscal discipline and structural reforms are key priorities of the IMF agreement in addition to Bitcoin-focused mandates. To address budgetary issues, El Salvador is expected to impose wage cuts and limit current spending. The country is eager to pass a new Fiscal Sustainability Law, aimed at making permanent changes to the civil service and pension systems.

In all, the IMF is urging fiscal consolidation and economic modernization to ensure long-term financial stability and growth for El Salvador. The IMF's stance reflects a cautious approach to cryptocurrency while emphasizing the importance of fiscal discipline and structural reforms.

Sources:[1] IMF Executive Board Discusses El Salvador's Fiscal Strategy (IMF) https://www.imf.org/en/News/Articles/2025/05/30/imf-executive-board-discusses-el-salvadors-fiscal-strategy

[2] El Salvador to Halt Public Bitcoin Purchases to Meet IMF Loan Terms (Reuters) https://www.reuters.com/business/el-salvador-halts-public-bitcoin-purchases-meet-imf-loan-terms-2022-11-17/

[3] El Salvador's Crypto Reality Check: 89% of Registered Bitcoin Firms No Longer Active (CoinDesk) https://www.coindesk.com/policy/2022/08/25/el-salvadors-crypto-reality-check-89-of-registered-bitcoin-firms-no-longer-active/

[4] IMF Agrees to Release $120 Million to El Salvador (ABC News) https://abcnews.go.com/International/wireStory/imf-agrees-release-120-million-el-salvador-contingent-84384845

1. The IMF has imposed conditions on El Salvador, requiring them to halt the expansion of government-held Bitcoins and unwind the public sector's involvement in the Chivo wallet by July.
2. El Salvador's Bitcoin reserves have surpassed 6,190 BTC as of late May 2025, generating substantial unrealized gains of around $386 million.
3. To mitigate possible financial weaknesses and regulatory risks, the IMF is pushing for the halting of Bitcoin accumulation and separating government wallets from the Chivo payment system.
4. The Chivo wallet, initially launched to attract more users and businesses to adopt Bitcoin, has faced operational challenges and regulatory scrutiny.
5. The IMF is urging fiscal consolidation and economic modernization, emphasizing the importance of fiscal discipline and structural reforms, in addition to Bitcoin-focused mandates.

Read also: