Update Dec. 19, 5:45 am UTC: This article has been updated to add a response from El Salvador’s National Bitcoin Office.
In a significant turn of events, the International Monetary Fund (IMF) has announced that it will provide $1.4 billion in loans to El Salvador over the next 40 months as part of a deal aimed at reducing the country’s debt-to-GDP ratio. However, this financial lifeline comes with conditions that may spell trouble for El Salvador’s ambitious Bitcoin experiment.
A Voluntary Approach
According to the IMF statement, the Central American nation will make merchant acceptance of Bitcoin voluntary, which is a significant departure from President Nayib Bukele’s original plans to make it a mandatory legal tender. This move is likely to dampen the usage of Bitcoin in the country, as the current voluntary approach has not yielded significant results.
The IMF’s Conditions
As part of the loan deal, El Salvador will be required to unwind its involvement in the Chivo wallet, a state-backed cryptocurrency wallet that was launched in 2021. The wallet, which was expected to promote the use of Bitcoin among Salvadorans, has seen limited adoption and has become largely redundant.
Taxes in US Dollars
The IMF also announced that taxes will be paid in US dollars, rather than Bitcoin. This move is likely to reduce the demand for Bitcoin as a store of value or medium of exchange within the country.
Public Sector Engagement: Confined
According to the IMF statement, public sector engagement with Bitcoin-related economic activities and transactions will be confined. This means that government agencies will no longer be actively promoting or using Bitcoin for official business.
What Does This Mean for El Salvador’s Bitcoin Holdings?
Despite these conditions, the National Bitcoin Office has stated that the country will continue to accumulate Bitcoin at a rate of one coin per day. However, it is unclear how this will be achieved given the IMF’s requirement that taxes will be paid in US dollars and public sector engagement with Bitcoin will be confined.
A Long-Standing Relationship
The agreement between El Salvador and the IMF marks the end of four years of negotiations that have been marked by tension between President Bukele and the global lender. The IMF has long called on Bukele to drop his Bitcoin plans, citing concerns about the speculative nature of the cryptocurrency and its potential risks for the country.
IMF’s Concerns
The IMF has expressed concerns about the risks associated with Bitcoin’s volatility, which could put a strain on El Salvador’s financial system. The lender has also called for more transparency in the government’s handling of Bitcoin-related transactions.
Reaction from Max Keiser
Bitcoin adviser to President Bukele, Max Keiser, took to social media to express his disappointment with the IMF’s announcement. "Nobody pays attention to these assh****," he tweeted. "The IMF’s point is DOA [dead on arrival]."
Growing Adoption: A Contradiction?
However, despite the IMF’s concerns and the conditions attached to the loan deal, Bitcoin adoption in El Salvador continues to grow. According to a recent survey, 92% of Salvadorans do not use Bitcoin for transactions, but this number has actually increased from 88% in a previous survey.
The Future of Bitcoin in El Salvador
As the IMF’s announcement makes clear, the future of Bitcoin in El Salvador is far from certain. While the National Bitcoin Office continues to accumulate coins at a rate of one per day, it remains unclear how this will be achieved given the conditions attached to the loan deal.
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IMF Executive Board’s Approval
The agreement still needs the IMF Executive Board’s approval before it can be finalized. However, this move marks a significant shift in the country’s Bitcoin experiment and may signal a more cautious approach to cryptocurrency adoption in the future.
What Do You Think? Share Your Thoughts
Do you think El Salvador’s Bitcoin experiment will continue to thrive despite the conditions attached to the loan deal? Share your thoughts with us in the comments below.
