Key Takeaways
- Under the agreement, the government will no longer require businesses to accept bitcoin
- Public sector involvement in BTC-related transactions will be limited, and government purchases of bitcoin will be scaled back.
El Salvador has finalized a $1.4 billion loan agreement with the International Monetary Fund (IMF), following the country agreeing to reduce its emphasis on bitcoin-related policies, which have been a source of international debate since El Salvador made BTC legal tender in 2021.
The IMF deal, set to span 40 months, includes measures aimed at lowering the country’s debt-to-GDP ratio while mitigating risks associated with bitcoin’s volatility. Under the agreement, the government will no longer require businesses to accept bitcoin. Further public sector involvement in bitcoin-related transactions will be limited, and government purchases of bitcoin will be scaled back.
In its statement, IMF, emphasized that the reforms would “significantly diminish” risks associated with the bitcoin project, aligning with its broader financial stability goals.
The government has also committed to phasing out its participation in the Chivo wallet, a state-backed platform designed to facilitate bitcoin use. Initially launched with significant fanfare, the wallet offered $30 in free bitcoin to new users, but surveys have shown limited adoption. Many Salvadorans reportedly used the initial bitcoin allocation for transactions or converted it to U.S. dollars, the country’s official currency.
Under the terms of the agreement, bitcoin will no longer be accepted for tax payments, and transparency measures for digital assets will be enhanced. President Nayib Bukele’s administration has defended its bitcoin initiative, citing benefits such as increased tourism and robust remittances.
The deal is expected to unlock additional financial assistance from global institutions, potentially exceeding $3.5 billion in total.
Despite these changes, El Salvador has not completely abandoned its support for bitcoin. The country’s National Bitcoin Office stated that it plans to continue accumulating BTC as part of its strategy
The agreement comes after years of negotiations between El Salvador and the IMF, complicated by concerns over the risks of integrating bitcoin into a national financial system. The deal awaits final approval from the IMF Executive Board, which is expected to likely support the agreement.
