El Salvador has reached an agreement with the International Monetary Fund (IMF) for a loan of 1.4 billion dollars, which will be disbursed over the next 40 months under the Extended Fund Facility (EFF).
The agreement aims to support the government’s economic reforms, but includes restrictive measures on activities related to Bitcoin, the cryptocurrency adopted in 2021 as legal tender.
Bitcoin and the “potential risks” according to the IMF loan for El Salvador
In the official statement, the IMF emphasized that the loan will help reduce the risks associated with the country’s Bitcoin project. Among the main provisions, the acceptance of Bitcoin in the private sector will be made voluntary, removing the obligation for companies to accept the cryptocurrency as a method of payment.
Furthermore, the government will limit its involvement in transactions related to Bitcoin and will gradually reduce its participation in the Chivo cryptocurrency portfolio, an initiative launched to promote the adoption of Bitcoin at the national level.
The taxes, based on the new agreement, can be paid exclusively in US dollars, confirming a transition towards greater currency stability.
The agreement with the IMF represents only a part of the overall financial package that El Salvador will receive. The government is negotiating additional funding with other international banking institutions, for a total exceeding 3.5 billion dollars. These funds will be used to strengthen public finances and support economic development projects.
The criticisms of the cost of IMF assistance
Despite the potential benefits, the decision of El Salvador has raised doubts and criticisms. A well-known podcaster specialized in Bitcoin has questioned the real cost of the financial assistance from the IMF.
According to this perspective, the loan could represent a significant compromise, forcing the government to scale down one of its most ambitious projects: the adoption of Bitcoin as a tool to promote financial inclusion and attract foreign investments.
The same IMF policy, perceived as contrary to criptovalute, could hinder the financial innovation that El Salvador has sought to lead in recent years.
The adoption of Bitcoin by El Salvador has attracted global attention and sparked controversy since its announcement. Although the government has promoted the cryptocurrency as a tool to enhance access to financial services and stimulate economic growth, the results have been controversial so far. The volatile value of Bitcoin has exposed the country to significant financial risks, fueling concerns from organizations like the IMF.
With the new agreement, the role of Bitcoin in the economy of El Salvador seems set to diminish, at least in the short term. However, the government might continue to pursue innovative policies in the cryptocurrency sector, seeking a balance between macroeconomic stability and technological experimentation.
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Conclusions
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The agreement between El Salvador and the IMF marks a crucial moment for the Central American country. Although the $1.4 billion loan provides essential support for public finances, the restrictions imposed on Bitcoin represent a step back for one of the government’s most audacious projects.
It remains to be seen if this compromise will succeed in balancing the needs of economic stability with the ambition to position El Salvador as a leader in the adoption of cryptocurrencies.
Source: https://en.cryptonomist.ch/2024/12/19/el-salvador-limits-the-use-of-bitcoin-agreement-with-the-imf-for-a-loan-of-1-4-billion-dollars/