IMF intensifies push for El Salvador to rein in Bitcoin and tighten crypto regulations

The International Monetary Fund (IMF) has once again urged El Salvador to revisit its approach to Bitcoin and tighten its regulatory framework for the digital currency.

During an October 3 press conference, IMF representatives reiterated their concerns about the nation’s decision to make Bitcoin legal tender, calling for reforms in its handling of the cryptocurrency.

Julie Kozack, director of the IMF’s communications department, spoke at the briefing but did not specify the exact changes the IMF is proposing for El Salvador.

With respect to the details on Bitcoin, 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 the public sector exposure to Bitcoin.

However, she made it clear that the institution remains cautious about Bitcoin’s integration into the nation’s financial system.

Since El Salvador became the first country to legalize Bitcoin in 2021, the IMF has consistently pressured the Central American country to return to more traditional financial practices.

Back in August 2024, the IMF reiterated similar concerns but acknowledged that some of the potential risks tied to Bitcoin adoption “have not yet materialized.”

This hasn’t deterred the organization from advocating for a shift away from cryptocurrency.

Global concerns about Bitcoin and crypto

The IMF has long expressed reservations about the growing use of Bitcoin and other cryptocurrencies, particularly as some countries look to alternatives in response to the devaluation of fiat currencies.

Bitcoin, often touted as a decentralized alternative to traditional monetary systems, has been adopted by individuals and nations alike as a hedge against inflation and currency instability.

In 2023, the IMF stepped in to offer technical advice to Andorra, helping the country establish systems to monitor Bitcoin transactions.

By March 2024, the IMF had suggested that Pakistan impose a capital gains tax on cryptocurrency to qualify for a $3 billion loan package.

Additionally, the IMF recently explored the idea of taxing the energy consumption tied to crypto mining as part of a broader push to reduce carbon emissions.

Such a tax could increase energy costs for miners by as much as 85%, posing a significant challenge for an industry already grappling with rising operational costs and the complexities of post-halving economics.

Pushing for central bank digital currencies

While the IMF remains critical of non-state-controlled cryptocurrencies like Bitcoin, it has been vocal in its support for central bank digital currencies (CBDCs).

In September, the organization unveiled its “REDI” framework, aimed at assisting central banks worldwide in adopting CBDCs.

REDI, which stands for regulation, education, design, and incentives, is designed to help central banks introduce these digital currencies in a way that resonates with and benefits their populations.

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