El Salvador has reached an agreement with the International Monetary Fund over a $1.4 billion loan package that will see the Central American nation scale back its Bitcoin program.
The funding package will be exchanged for a reduction in the country’s domestic Bitcoin activity, subject to final approval from the IMF executive board.
The drawdown will come from the IMF’s Extended Fund Facility, over 40 months, in support of El Salvador’s reform agenda and in particular, to assist its balance of payment needs.
As detailed by the global financial institution, further funding will be provided by the World Bank and the Inter-American Developmental Bank, as well as other sources, to take the total support package beyond $3.5b.
“The potential risks of the Bitcoin project will be diminished significantly in line with Fund policies,” said the IMF statement.
“Legal reforms will make acceptance of Bitcoin by the private sector voluntary. For the public sector, engagement in Bitcoin-related economic activities and transactions in and purchases of Bitcoin will be confined.”
The IMF and the EL Salvador government have reached a staff-level agreement on a 40-month EFF arrangement to support the government's economic reforms. The agreement with 🇸🇻 is subject to approval by the IMF Executive Board. https://t.co/1GLjFsEhVl pic.twitter.com/M1U77Flz4f
— IMF (@IMFNews) December 18, 2024
Businesses no longer obliged to accept Bitcoin
Among the measures aimed at improving El Salvador’s economic stability, the IMF deal includes significant changes to Bitcoin’s role within the financial system.
The digital currency will remain legal tender but this status appears to be undermined as businesses will no longer be obliged to accept it. This goes against Article 7 of El Salvador’s 2021 Bitcoin Law, which decreed that “Every economic agent must accept bitcoin as payment when offered to him by whoever acquires a good or service.”
In the public sector, the government has pledged to gradually reduce its participation in Bitcoin-related activity, including phasing out the state-managed public wallet, Chivo.
Taxes will only be payable in U.S. dollars, which is another significant blow to Bitcoin’s widely acclaimed status in El Salvador.
As the price of Bitcoin topped $100,000 for the first time earlier this month, President Nayib Bukele welcomed the landmark, stating the value of the nation’s crypto holdings had more than doubled.
In June 2021, Bukele was at the forefront as El Salvador became the first country to accept Bitcoin as legal tender in the name of financial inclusion, but this latest IMF deal represents a significant change in the country’s economic policy.
Image credit: Via Ideogram
