El Salvador’s Bitcoin Law Changes To Secure IMF Funding

El Salvador’s Bitcoin Law Changes have reshaped the country’s approach to bitcoin as legal tender, making the definition difuse but helping to unlock up to $3.5 billion in new financing from multilateral institutions. Since 2021, El Salvador positioned itself as Bitcoin Country, mainly due to the recognition of bitcoin as legal tender, approved that year.

On January 29, the country modified this law to comply with the International Monetary Fund’s conditions for accessing a $1.4 billion loan announced in late 2024. The IMF board approved it on February 26, allowing the authorities an immediate disbursement of approximately $113 million.

El Salvador’s Bitcoin Law Changes Review

In the original text of the Bitcoin Law, the legal tender status was clear and aligned with widely accepted definitions. Even though it was never fully enforced, it explicitly defined bitcoin as currency, mainly through Articles 1 and 7. Now, the updated text omits this definition. In fact, the original Spanish version is ambiguous, defining Bitcoin as “curso legal” which can be translated to “legal course.”

The Bitcoin Law changes related to the legal tender status highlight that merchants are no longer compelled to accept BTC, and it is no longer an option for tax payments, removing key aspects of its previous legal tender status. Going forward, BTC acceptance will be voluntary. Thus, under the reviewed Bitcoin Law, bitcoin is no longer classified as “currency” but remains a payment method exempt from capital gains tax.

The public sector activities related to bitcoin will be phased out to comply with the “confined” status the IMF required in December. Chivo Wallet, El Salvador’s central infrastructure for bitcoin transactions, will be unwound. Despite the issues and criticism around it, it was one of the main ways for average Salvadoreans to use BTC during these years.

In the latest IMF statement, it’s clear that El Salvador’s administration is urged to halt many of its Bitcoin strategies. From operating Chivo to accumulate BTC.”The program also addresses risks arising from the Bitcoin project, including by making acceptance of Bitcoin voluntary and by confining public sector engagement in Bitcoin-related activities and transactions in and purchases of Bitcoins,” the document states.

The Community Reacts To The Bitcoin Law Changes

El Salvador remains a focal point for the global Bitcoin community. As the first country to make BTC legal tender, it gained international relevance, attracting expats and Bitcoin enthusiasts eager to support its success.

I spoke with some bitcoin Advocates, including local bitcoin educators, to better understand the impact of these Bitcoin Law changes on their projects and broader interest in the country. “Among many Bitcoiners I spent time with in El Salvador, the mood was somewhat subdued,” content creator and journalist Joe Nakamoto shared during an interview while visiting the country.

“A lot of international Bitcoiners moved to El Salvador for the Bitcoin Law; some Salvadorans returned. Now, doubt about the country’s future with regards to Bitcoin has crept in,” he added. The reporter also noted that it’s too early to assess the full impact of these legal modifications on local bitcoin education and adoption efforts.

For Lina Seiche, Founder of the Little Hodler project and based in El Salvador, the modifications to the law “do not change anything for private projects, and the Bitcoin Office initiatives are unaffected as well.” She emphasized that the law still permits BTC use. “It’s not as if using Bitcoin has been outlawed; it has just been made optional,” Seiche said. Seiche is also part of the team behind and educational work-book that aims to educate Salvadorean kids in a national scale.

Salvadoreans Unaffected Despite The Bitcoin Law Changes

“For Salvadorans, not much changes,” Evelyn Lemus, Founder of the circular economy and educational project Bitcoin Berlin, explained in an interview. Three and a half years after the law was introduced, Bitcoin adoption remains low. For the few who do use it, the biggest change is the uncertainty surrounding the future of the Chivo wallet, leading people to withdraw or transfer their funds to other wallets,” Lemus detailed.

Berlin is among the most active circular economies in El Salvador, with over 150 merchants accepting Bitcoin. “Not much has changed regarding people accepting or not accepting it since the announcement. For Berlín, nothing changes. Bitcoin is now part of the town, and people will keep using it regardless of what the law says,” Lemus argued.

According to a poll published in January by Universidad Centroamericana and reported by the local outlet elsalvador.com, 92% of Salvadoreans didn’t use BTC in 2024, which explains why the Bitcoin law changes didn’t negatively impact the government.

El Salvador Secured $3.5 Billion With The Bitcoin Law Changes

Since day 1 of the Bitcoin Law, the IMF has been against it. They pointed to different risks and issues regarding the Bitcoin project and were very vocal. However, the tone changed after the agreement was reached and announced in late 2024. A lot. What happened?

For Seiche, this deal “went down in such a way that allowed all sides to run with their favorite version of the narrative.” El Salvador still has its Bitcoin Law, and the agreement could help catalyze additional financial support of over US$3.5 billion from other multilateral institutions, while the IMF had the problematic concepts removed.

But there are some who take a more critical position around the agreement and the changes. “The IMF got what they wanted–a seat at the table to decide Bitcoin policy in El Salvador. They don’t need to be vocal anymore,” educational project My First Bitcoin founder John Dennehey told me in an interview. He’s been critically commenting on the agreement since December, pointing to the conditions the fund usually imposes on countries like El Salvador that are looking for financial support.

“El Salvador challenging the IMF with the Bitcoin Law was becoming a dangerous example for other countries,” Evelyn Lemus from Bitcoin Berlin pointed.

“Now the IMF has successfully imposed changes to the law, making a statement that El Salvador is not so different from other countries that make deals with them and can also be influenced,” she concluded regarding the Bitcoin Law changes.