As El Salvador slowly submits to requests by the International Monetary Fund (IMF), it has modified its laws to diminish bitcoin’s (BTC) role in the economy.
Indeed, despite President Nayib Bukele taunting the IMF and boasting about his embrace of BTC, his need for US dollar financing has forced him to reverse most of his once-celebrated policies.
This, in turn, has led to debates among Bitcoiners over whether BTC is even legal tender erupting on social media.
BTC no longer accepted for payment of taxes
Bukele’s administration has modified laws that enshrined BTC’s role as legal tender in the country’s constitution, neutering the role of the world’s foremost digital asset.
Critically, the government deleted a provision in Article 4, “Todas las contribuciones tributarias podrán ser pagadas en bitcoin” (translated: All tax contributions may be paid in bitcoin).
Because an instrument’s status as “legal tender for all debts, public and private” is usually its paramount quality in obtaining legal tender status, BTC no longer qualifies under this definition.
Merchants no longer compelled to accept BTC
A recent amendment to the law that made BTC legal tender still refers to it as such, but modifies the requirement for merchants to accept it as payment. Throughout the country, the government doesn’t compel merchants to accept BTC as a payment method.
Despite the fact that the law in theory forced BTC’s acceptance, the rule was never actually enforced. This has led some Bitcoiners to contest that it was never actually legal tender in the first place.
Government no longer must express prices in BTC
The law that enforced BTC’s expressibility as a unit of account is also gone. Whereas in 2021, the law forced the government to accept BTC-denominated expressions of money, a modification now merely stipulates that US dollar prices are “convertible” into BTC at freely traded market rates.
Not ‘currency’ per January 29 legal revision
Perhaps most importantly, BTC is no longer legally classified as a currency in El Salvador. According to the new Article 1, Salvadoran law now regulates BTC “como curso legal” (translated: like legal tender) rather than its previous status, “como moneda de curso legal” (translated: like legal tender currency).
Read more: Does a bitcoin rally to $100K repay El Salvador’s IMF loans?
Government may not accept service payments in BTC
The government may not even accept BTC for non-tax payments of general services. Indeed, residents must now use USD even for business incorporation fees or passport services.
The law adds restrictions on almost every type of government acceptance of BTC payments. Whereas Article 7 of its law once compelled, “Every economic agent to accept bitcoin as a form of payment when offered by someone acquiring goods or services,” the new law replaces that requirement entirely with “Only natural or legal persons with total private participation may accept bitcoin as a form of payment.”
Still exempt from capital gains
Although Bukele’s administration has eliminated most of BTC’s qualities as a currency in the country, the January 29, 2025 revision maintains the capital gains exemption on transactions. Moreover, the government may hold it as a reserve asset.
The IMF also expects the government to sell or shutter its once-state-backed Chivo wallet. Chivo became notorious for its flawed rollout, and adoption among El Salvadoreans was never high.
The above amendments to the laws of El Salvador are part of a deal with the IMF to unlock $1.4 billion in loans. The World Bank and Inter-American Development Bank will provide an additional $2.1 billion.
