IMF’s $1.4B Deal Revamps El Salvador’s Bitcoin Policies 

• El Salvador eases Bitcoin policies under a massive $1.4 billion loan deal with the IMF. 
• The agreement allows businesses to choose whether to accept Bitcoin as payment.
• The IMF also suggests the government reduce its involvement in the Chivo crypto wallet.

El Salvador’s ambitious Bitcoin policies may be left unrealized as the country enters into a massive $1.4 billion loan deal with the International Monetary Fund (IMF). Citing inherent risks associated with Bitcoin adoption, the IMF recommended that businesses in El Salvador be given the freedom to choose whether to accept Bitcoin as payment. The agreement, if approved, would mandate the government to reduce its involvement in the Chivo crypto wallet.

Elaborating on the potential changes in El Salvador’s controversial Bitcoin policies, the regulator cited, 

The potential risks of the Bitcoin project will be diminished significantly in line with Fund policies…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.

El Salvador, being the first nation to adopt Bitcoin as a legal tender, has gained widespread attention and criticism. The global monetary watchdog has long been warning the country and President Nayib Bukele against the crypto-related risks. Pointing out Bitcoin’s speculative nature, the IMF advised the country to restrict the government’s exposure to the cryptocurrency. 

They cautioned, “Given the legal risks, fiscal fragility, and largely speculative nature of crypto markets, the authorities should reconsider their plans to expand government exposures to Bitcoin, including by issuing tokenized bonds.” 

After prolonged negotiations, El Salvador has decided to ease its Bitcoin policies under the new agreement with the IMF. As per the agreement dated December 18, the IMF would provide $1.4 billion over the next 40 months. In response, the country would implement measures to reduce its debt-to-GDP ratio. However, the agreement still needs the approval of the IMF Executive Board. 

Since 2021, El Salvador has been aggressively accumulating Bitcoin, becoming one of the largest BTC holders. According to data released by El Salvador’s National Bitcoin Office, the country currently holds 5,968.8 Bitcoin, worth about $602 million. Despite the recent development, a National Bitcoin Office spokesperson revealed the country’s decision to continue purchasing the crypto. 

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