- El Salvador will make Bitcoin adoption voluntary for businesses and reduce government involvement in the Chivo wallet as part of a $1.4 billion IMF loan agreement.
- The IMF’s deal, which includes financial reforms, aims to reduce El Salvador’s debt-to-GDP ratio and minimize Bitcoin-related risks.
- Public sentiment toward Bitcoin adoption is declining, with 92% of Salvadorans not using Bitcoin for transactions, according to a recent survey.
El Salvador, the first country to make Bitcoin legal tender, will reform its unpopular cryptocurrency experiment as part of a deal on a $1.4 billion loan with the International Monetary Fund (IMF). In what has been one of the most major policy reversals, the Central American nation has agreed to make Bitcoin adoption voluntary for businesses, scale down its involvement in the Chivo wallet, and cap public sector engagement with economic activities related to Bitcoin.
The IMF deal announced on December 18 will indeed provide a much-needed financial lifeline to El Salvador. The loan, which will be disbursed over a period of the next 40 months, has specific stipulations attached with the intent of reducing the country’s debt-to-GDP ratio. In return for the money, El Salvador has agreed to make legal reforms that effectively throttle the country’s Bitcoin-related activities.
The IMF stated that the risks associated with the Bitcoin project will be “significantly diminished,” which aligns with its policies. These reforms include making the acceptance of Bitcoin by private-sector businesses voluntary and confining public-sector engagement in Bitcoin transactions and purchases.
The IMF also crystallized that taxes in the country were still to be levied in U.S. dollars, which is considered the nation’s official currency, further indicating what looks like a retreat toward Bitcoin’s role in this nation’s economy. Its state-backed Chivo Wallet, launched as part of El Salvador’s Bitcoin initiative, will see a gradual exit of the government from being involved in it.
While El Salvador’s Bitcoin journey began on a high note in 2021, the South American country’s continued addition of Bitcoin has been taken well with a pinch of salt. The National Bitcoin Office, which keeps track of the country’s Bitcoin wealth, estimates El Salvador currently keeps 5,968.8 Bitcoins valued at approximately $602 million.
IMF vs El Salvador Bitcoin Debate and $3.5B Financing Deal
Despite the IMF’s stance, a spokesperson for the National Bitcoin Office assured the public that the country intends to continue its Bitcoin strategy, including buying one Bitcoin per day, or potentially more in the future, without selling any of its current holdings.
Furthermore, the new turn of events marks the culmination of four years of tension and negotiation between President Nayib Bukele’s administration and international financial institutions. For a long period, the IMF was critical of the Bitcoin strategy in El Salvador because of its volatile nature, which might cause severe damage to the nation’s economic stability.
The deal will ease some financial pressure; the additional loans from the World Bank and other global banks bring the total financing package to more than $3.5 billion. While the critics of the IMF’s stance have remained loud, with Bitcoin adviser Max Keiser dismissing the IMF’s criticisms as “bureaucratic nonsense,” public sentiment around Bitcoin adoption in El Salvador has been far less enthusiastic. A survey in October showed that 92% of Salvadorans do not use Bitcoin for any transaction, which is a big jump from 88% in 2023.
As El Salvador reassesses its Bitcoin policies, it is yet to be seen how the country will navigate its evolving relationship with the cryptocurrency and the broader global financial system. The loan deal from the IMF brings much-needed financial support; at the same time, it ushers in a new era for El Salvador’s experiment with Bitcoin-one where the country is slowly deserting full-scale Bitcoin adoption and shifting back toward more traditional economic strategies.
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