Reasons Behind the Growth of El Salvador’s Reserves

With a 40-month, $1.4 billion International Monetary Fund Extended Fund Facility in effect, the IMF’s restrictions on Bitcoin purchases have linked El Salvador’s adoption of Bitcoin to its financial stability strategy. In this backdrop, the IMF clarified that the recent announcement regarding the increase of Bitcoin in El Salvador’s reserves is “consistent with the agreed program conditionality.”

A critical aspect of this arrangement is that the El Salvadoran government has pledged not to acquire additional Bitcoin. At least, that’s what the majority of relevant documents assert. In its letter of intent dated February 12, as noted in the staff report published on March 3, representatives from El Salvador endorsed this agreement.

“Throughout the duration of the program, the authorities have promised not to accumulate Bitcoins,” states the Memorandum of Economic and Financial Policies attached to the letter signed by Central Bank President Douglas Pablo Rodríguez Fuentes and Minister of Finance Jerson Rogelio Posada Molina. This commitment is reiterated in the Policies Under The Extended Fund Facility Arrangement section.

However, following President Nayib Bukele’s seemingly contradictory statement on his X account, where he proclaimed that the accumulation is “not stopping,” numerous questions arose, alongside comments regarding the consistency between the IMF and El Salvador’s stance on the matter.

I inquired about this with the communications department of the IMF, and their reply suggests a more flexible interpretation.

“The government under this program has committed to not accumulate further Bitcoins at the overall public sector level. We consulted with the authorities, and they have assured us that the recent uptick in Bitcoin holdings within the Strategic Bitcoin Reserve Fund aligns with the agreed program conditionality,” their response indicated.

Thus, if Bitcoin reserves have indeed risen, as reported by the Bitcoin Office on X, how does this reconcile with the promise not to accumulate more?

Loopholes in the IMF Restrictions on Bitcoin Purchases

Given the agreement, this new clarification, and Bukele’s statement, there appears to be some leeway to explain this apparent inconsistency.

The Strategic Bitcoin Reserve could be designed to exist outside the official public sector, allowing for an increase in holdings without breaching the agreement.

Another possibility is that not all forms of accumulation involve direct purchases or mining. If Bitcoin reserves are augmented through other financial maneuvers without direct involvement of the public sector, it technically may not constitute “accumulation” as per the agreement’s definition.

El Salvador might also be engaged in reclassifying assets. Bitcoin could be shifting among government-controlled entities without it being treated as a new acquisition. This could pose issues, as the staff report explicitly notes that all wallets—whether hot or cold—must be identified.

The IMF’s amicable response also implies that relations between the Fund and El Salvador’s administration are favorable. If reserves are growing under a policy that allegedly forbids accumulation, the Fund’s clarification indicates that a standard criterion is more adaptable than what the documents take into account.

The IMF Restrictions on Bitcoin Purchases Beyond the Headlines

On paper, the El Salvadoran government is adhering to the agreement. Nevertheless, the recent clarification from the IMF indicates there is room for interpretation.

As long as Bitcoin holdings increase in a manner consistent with the program’s framework, there is no infraction—at least for now.

El Salvador’s Bitcoin strategy continues to push against traditional financial boundaries, and its relationship with the IMF and other multilateral institutions remains vital for ongoing development. The pivotal question looking ahead is whether these differing interpretations of the scope of IMF restrictions on Bitcoin purchases will result in conflict or simply evolve as part of a changing financial playbook.