Early legal reforms will help mitigate key Bitcoin-related risks. A recent reform of the Bitcoin Law clarified the legal nature of Bitcoin, removing from the Law the concept of currency, as well as the essential features of legal tender by eliminating the obligation for the public and private sector to accept Bitcoin in transactions, making acceptance of Bitcoin by the private sector voluntary and confining its use by the public sector (prior action). A regulation will also clarify that tax obligations are to be paid only in U.S. dollars (prior action). The legal reform also ensured that monetary obligations of the state are not paid in Bitcoins and removed the government’s obligation to provide a Bitcoin-US dollar convertibility mechanism.

Transparency over the government’s transactions in Bitcoin and the financial position of the public e-wallet Chivo will be boosted. As a first step, the authorities will:

(i) Publish Chivo’s summary financial statements, including liquidity management policies and transfers to and from the government;

(ii) Publish the public addresses of all Bitcoin cold e-wallets owned or under control of the public sector;

(iii) Segregate and safeguard Chivo clients’ assets (prior action).

This will be followed by the publication and adoption of the government’s business plan to end the use of public funds and public participation in Chivo by end-July 2025 (end-March 2025 SB) and publication of Chivo’s financial statements audited by an independent auditor (end-July 2025 SB), to allow for the privatization of its services. In addition, Fidebitcoin will be liquidated along with publication of the Court of Accounts’ audits for Fidebitcoin and the Bitcoin Management Agency, Chivo clients’ U.S. dollars will be safeguarded at the BCR, and public participation in Chivo will end (end-July 2025 SB). Furthermore, a framework for the management of government-owned Bitcoins and other crypto assets will be developed to enhance the governance, transparency, accountability, and investment practices of the Bitcoin Management Agency (or new institution created to this end in agreement with staff) (end-December 2025 SB).

Meanwhile, the government’s exposure to Bitcoin will be capped. Over the course of the program, the authorities have committed not to accumulate Bitcoins (continuous QPC), and not to issue nor guarantee any type of Bitcoin-indexed or denominated public debt or tokenized instruments implying a liability for the government (continuous QPC). This will be accompanied by enhanced monitoring and transparency, through regular reporting of all hot and cold Bitcoins wallets’ public addresses and of all Bitcoins owned or controlled by the public sector (prior action and regular SBs). The authorities plan to publish on a quarterly basis financial statements of other trust fund and SOEs involved in the Bitcoin project (CEL and LaGeo), and Bitcoin operations will be reflected in macroeconomic and fiscal statistics (MEFP ¶24). No new public or publicly-owned entities participating in Bitcoin operations will be created except if needed to manage existing assets and in agreement with staff.

Efforts will be required to strengthen the oversight and regulations over crypto-assets in line with evolving international best practices. The existence of a digital assets’ regulatory framework and a regulator dedicated to digital assets (CNAD), as well as a favorable tax treatment, makes El Salvador an attractive destination for crypto entities, as exemplified by Tether’s relocation to the country. While maintaining an environment suitable to innovation, legal reforms to overhaul the regulation and supervision of crypto-asset activities and markets (including crypto-asset issuers and service providers) will be submitted to Parliament (August 2025 SB), under the guidance of Fund technical assistance. In this regard, emphasis will be given to addressing ML/TF risks in line with FATF Recommendation 15 as well as financial stability and cybersecurity risks. In addition, the legal reforms will be critical to strengthen market integrity and consumer protection policies (anti-fraud, anti-manipulation, transparency), as well as to develop governance, data frameworks, solvency, liquidity, segregation, and other prudential requirements.

More specifically, amendments to the Bitcoin Law: (i) Defined the scope of Bitcoin‘s unlimited discharging power and legal tender status as voluntary acceptance of the private sector; (ii) Repealed the obligatory Bitcoin acceptance and authorization to pay taxes in Bitcoin; (iii) Eliminated the characterization of Bitcoin as a currency; (iv) Repealed the authorization for prices to be expressed in Bitcoin and established that prices can be converted in Bitcoin; (v) Repealed the State’s obligation to provide alternatives for Bitcoin-US dollar convertibility.