Key Takeaways
El Salvador is negotiating a $1.3 billion loan from the IMF requiring changes to its Bitcoin legal tender law.
The country plans to make accepting Bitcoin voluntary for businesses to comply with the IMF conditions.
El Salvador is currently in talks with the International Monetary Fund (IMF) to secure a $1.3 billion loan, which would necessitate revisions to its Bitcoin legal tender law and deficit reductions. According to a report from FT, citing sources familiar with the matter, the country is nearing an agreement with the IMF on the loan program.
As per the proposed terms, the government of El Salvador would modify the legal requirement that mandates businesses to accept Bitcoin as payment, making it optional instead. Additionally, the government would commit to reducing its budget deficit by 3.5% of GDP over a three-year period through spending cuts and tax increases. Simultaneously, it aims to increase reserves from $11 billion to $15 billion.
The deal is expected to be finalized within two to three weeks and may potentially unlock an additional $2 billion in lending from the World Bank and Inter-American Development Bank in the coming years, according to the report.
Ever since El Salvador became the first country in the world to recognize Bitcoin as legal tender, the IMF has repeatedly cautioned about the financial risks associated with its use, raising concerns about financial stability, integrity, and consumer protection.
This recent development follows the IMF’s recommendation for El Salvador to narrow the scope of its Bitcoin law, as reported by Bloomberg. This adjustment would involve strengthening regulatory oversight and reducing the public sector’s exposure to cryptocurrency. The IMF’s strategy aims to strengthen macroeconomic stability and promote sustainable growth in the country.
Under the leadership of President Nayib Bukele, a prominent Bitcoin supporter who was recently re-elected with 85% of the vote, El Salvador is poised to advance its ambitious pro-Bitcoin agenda.
With Bitcoin surpassing $100,000 last month, Bukele announced that the government’s Bitcoin reserves were valued at over $600 million, representing a 127% increase.
Despite the government’s efforts to promote Bitcoin, the majority of Salvadorans still prefer to use the US dollar as their primary legal tender for daily transactions.