The International Monetary Fund (IMF) has announced that discussions with El Salvador regarding the state-run Chivo Bitcoin wallet are progressing, with negotiations focusing on a potential sale or privatization of the platform. The talks are part of the second review of El Salvador's $1.4 billion Extended Fund Facility (EFF) agreement with the IMF, secured in 2024 after prolonged negotiations.
The IMF's primary objectives in these discussions are to enhance transparency, safeguard public funds, and mitigate risks associated with Bitcoin-related activities. As part of the EFF agreement, El Salvador has committed to reducing public sector involvement in the Chivo wallet. This includes halting Bitcoin accumulation through purchases and mining and dismantling public structures used to acquire the digital asset. Despite these commitments, El Salvador has continued to purchase Bitcoin, with its National Bitcoin Office reporting holdings of 7,509 BTC, worth over $65 million. The country has maintained a policy of buying one Bitcoin per day, even during periods of high volatility.
Launched in September 2021 as part of El Salvador's Bitcoin adoption strategy, the Chivo wallet has faced widespread criticism, including allegations of identity theft, fraud, technical failures, and frozen user accounts. A member of the Chivo wallet team suggested last year that the government should reconsider its support for the app due to the controversies it has generated. The IMF has repeatedly warned that Bitcoin's price volatility poses risks to public finances and has pushed for limits on government exposure. The agreement with the IMF also restricts public sector Bitcoin activity, effectively barring the government from using taxpayer or borrowed funds to invest in Bitcoin.
Despite the controversies surrounding Bitcoin adoption, El Salvador's economy is experiencing faster-than-expected growth, with real GDP growth projected to reach around 4% this year. This growth is attributed to high confidence, record remittances, and strong investment. The IMF has struck a positive tone on El Salvador's broader economic performance, acknowledging the country's ongoing structural reforms. While the future of the Chivo wallet remains uncertain, several private-sector Bitcoin wallets are expected to continue operating in the country.
