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IMF Raises Concerns Over El Salvador’s Bitcoin Policy Violations Via Chivo Wallet

The International Monetary Fund (IMF) has expressed concerns about El Salvador’s Bitcoin (BTC) management practices, spotlighting a breach of its agreement to stop further Bitcoin accumulation. According to the IMF, the violation originates from operational flaws within the government’s official cryptocurrency wallet, Chivo Wallet.

In a detailed report published on October 15, the IMF pointed out inconsistencies in Bitcoin deposit flows and liquidity management within Chivo Wallet. The report emphasized, “Although minor, these discrepancies represent a breach of the conditions outlined in the credit agreement.”

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Bitcoin Holdings Agreement: A $1.4 Billion Pledge

In February 2023, El Salvador secured a $1.4 billion credit deal with the IMF, agreeing to curb additional Bitcoin acquisitions at the government level. However, the unintended accumulation of Bitcoin occurs due to the Chivo Wallet’s operational structure. When users sell Bitcoin through the wallet, the underlying assets remain unsold on the open market—effectively increasing the government-held Bitcoin reserves.

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IMF’s Efforts to Mitigate and Monitor Breaches

The IMF reasserted its commitment to ensuring compliance with the agreement. “We are actively monitoring Chivo Wallet’s hot and cold wallet balances through signed protocols and have deployed advanced tracking tools to monitor daily asset movements,” it stated.

To rectify the issue, El Salvador’s government plans to dismantle Chivo Wallet by the end of the month. Additionally, authorities are preparing to liquidate Fidebitcoin, the state's Bitcoin Operational Fund that oversees the management of digital assets held by the government.

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Ongoing Bitcoin Accumulation Strategy Raises Questions

The IMF report notably avoided addressing El Salvador’s broader Bitcoin accumulation program, which is championed by President Nayib Bukele. According to the National Bitcoin Office of El Salvador (ONBTC), the country’s Bitcoin reserves currently stand at 6,239 BTC, valued at approximately $753 million.

While the report primarily focuses on the policy violations linked to the Chivo Wallet, it does not delve into the broader implications of El Salvador’s continued push to adopt Bitcoin as a cornerstone of its national investment strategy.

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By adopting a well-balanced approach to Bitcoin management, El Salvador faces the challenge of aligning its ambitious cryptocurrency plans with the commitments made to international financial institutions like the IMF. As the country continues navigating policy compliance, the global crypto community is keeping a close eye on the developments.

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