El Salvador reverses its bitcoin legislation

El Salvador made history four years ago by becoming the first country to accept bitcoin as legal tender. However, recent developments show that the country is now revising its approach to this cryptocurrency. The Legislative Assembly, under the control of President Nayib Bukele’s New Ideas Party, has approved changes to the Bitcoin Law, essentially stripping bitcoin of its status as legal currency. This decision, finalized with a 55–2 vote, modified six articles of the Bitcoin Law and repealed three others.

Under the revised legislation, bitcoin is no longer classified as a “currency” but retains the status of “legal tender.” Unlike before, the use of bitcoin is now entirely voluntary, as opposed to being mandatory for businesses to accept it as payment for goods and services. Another significant change is that bitcoin can no longer be utilized for settling taxes or government debts. Furthermore, the government is stepping back from its involvement in Chivo Wallet, a state-supported digital wallet, indicating an official shift in the country’s stance on cryptocurrency.

The amendments are part of a broader financial agreement between President Bukele and the International Monetary Fund (IMF). As a condition for a proposed $1.4 billion loan, the IMF required El Salvador to address the “potential risks of the Bitcoin project.” The IMF has expressed concerns about using bitcoin as legal tender due to its volatile nature, stating that they do not recommend it. Despite these alterations, El Salvador is maintaining its commitment to bitcoin. The country’s ambassador to the United States, Milena Mayorga, emphasized that El Salvador still considers itself a “bitcoin country” and plans to uphold, and even expand, its bitcoin reserves.

In recent days, reports have shown that the government purchased an additional seven bitcoins, bringing the total holdings to 6,055 bitcoins, valued at about $612 million. These investments signify the government’s ongoing interest in bitcoin, demonstrating that while there has been a partial withdrawal from President Bukele’s ambitious vision of integrating cryptocurrency, El Salvador remains engaged with the digital currency.

Amidst these changes, it is clear that El Salvador’s relationship with bitcoin is evolving. The recent legislative adjustments signal a recalibration of the country’s approach to cryptocurrency, particularly in response to concerns raised by international financial institutions like the IMF. However, El Salvador’s continued investment in bitcoin underscores its ongoing commitment to exploring the potential benefits and challenges associated with digital currencies. As the country navigates this complex terrain, it remains poised to adapt to the changing landscape of the global financial system.