El Salvador to Secure $1.4 Billion IMF Deal, Bitcoin Acceptance Becomes Voluntary

El Salvador has reached a preliminary arrangement with the International Monetary Fund (IMF) on a $1.4 billion loan. Under the agreement, the government must adopt several key measures to ensure that it can effectively use the funds to support its economic reform agenda, including some adjustments to its Bitcoin policy.

The country still buys one Bitcoin per day, now holding 5,969 BTC worth around $600 million.

Stacking!

Subject to IMF Executive Board approval, the deal would require El Salvador to implement measures to reduce government spending and improve its primary balance by approximately 3.5% of GDP over three years. The program is expected to help put the country’s public debt-to-GDP ratio on a downward trajectory after it peaks at 85% in 2024.

As part of the agreement, El Salvador would also agree to restrict the government’s use of Bitcoin and limit public sector participation in Bitcoin-related activities. This likely includes restrictions on using Bitcoin for government transactions and limiting the use of the Chivo wallet, the government-backed Bitcoin wallet.

Businesses and individuals will no longer be obligated to accept Bitcoin as legal tender; the country is making Bitcoin Bitcoin acceptance voluntary. These reforms are aimed at reducing risks associated with Bitcoin as a legal tender, which have long been a major concern to the IMF.

El Salvador, under the leadership of President Nayib Bukele, became the first nation to embrace Bitcoin as legal tender in September 2021. The landmark decision has enabled the country to use Bitcoin, alongside the U.S. dollar, for everyday transactions.

The IMF initially called for El Salvador to completely reverse Bitcoin’s legal tender status. However, it appears that the organization now focuses on urging the country to strengthen its regulatory framework surrounding Bitcoin.

The IMF has consistently warned that the legalization of Bitcoin poses risks to financial stability, market integrity, and consumer protection due to its volatile nature. The organization has urged El Salvador’s government to narrow the scope of the Bitcoin law, which involves limitations of public sector exposure to the cryptocurrency.

In recent discussions, the IMF continued to raise concerns about risks associated with Bitcoin. The entity noted that while those had not yet materialized, ongoing efforts were necessary to enhance transparency and mitigate potential fiscal and financial stability risks linked to its use.

Push For Bitcoin Adoption Is Largely Negative

Initial enthusiasm surrounding Bitcoin’s legalization has faded in the country that pioneered the national acceptance of the largest cryptocurrency. Bitcoin has seen limited adoption since it was made legal money in 2021.

Economic, social, and technological barriers have limited the effective use of Bitcoin among Salvadoran people. The challenges exist despite the government’s efforts to drive adoption, through the introduction of the Chivo wallet.

The app designed to facilitate Bitcoin transactions, recorded low user engagement. Reports showed that 61% of Chivo users stopped using the app after spending their sign-up bonus of $30 in Bitcoin.

On the business front, surveys showed that only about 20% of businesses accepted Bitcoin as a form of payment by 2022. While some businesses in tourist areas reported increased activity from cryptocurrency tourists, overall usage remained low, and many reports indicated that Bitcoin had not efficiently boosted tourism or economic growth as initially hoped.

Yet, that does not stop the government from accumulating Bitcoin. El Salvador is still buying one Bitcoin per day. The country has continued this policy regardless of market conditions. President Bukele has stated that the government would maintain these daily purchases until it becomes infeasible to do so with fiat currency.

As of latest data tracked by Arkham Intelligence, El Salvador has acquired 5,969 BTC worth around $600 million. As the market pumps, the nation looks smarter all the time.