Cryptocurrency especially Bitcoin became the official policy in El Salvador as it became the first country to make Bitcoin legal tender. Now, the nation has struck a deal to borrow $1.4 billion from the International Monetary Fund (IMF). This includes restraining several Bitcoin-related activities and adopting steps to correct the country’s fiscal conditions. The agreement comes after a long bargaining between El Salvador and the International Monetary Fund.
The Changes of Adoption Ratios to Bitcoin in the IMF Agreement
As for El Salvador, the IMF admitted its attempts to stabilize the country’s economy by fighting inflation and effectively dealing with its short-term liabilities. However, the Bitcoin policies and the degradation of the nation have to be altered as a part of the discussed deal.
One of them comprises that digital payment with Bitcoins in the private sector has been made non-compulsory. The government’s participation in Bitcoin-related operations will also be restricted. Foreign taxes would remain collectible in U.S. dollars only the official currency of the Republic of El Salvador.
To which the IMF said that all these changes would help in minimizing risks related to Bitcoins and this was in line with the norms set by it. These changes occurred following fears that arose after El Salvador pursued the adoption of Bitcoin in 2021 earlier sank credit ratings and eroded bonds’ value.
Chivo Wallet to See Reduced Government Role
The government of El Salvador will also reduce the usage of the state-adopted Chivo wallet store, a wallet launched in early 2021 to support Bitcoin transactions. Initially offering $30 of Bitcoin to the users, the wallet attracted millions of users which faced some technology problems and most of the users have not remained active for a long time.
At the time of writing this paper in October 2022, only 1.7% of remittances to El Salvador had been transacted or passed through the Chivo wallet. Pursuant to the agreement, the government will over time relinquish the management of the online marketplace.
Even though it has faced some problems with the Chivo initiative, the government does not stop changing the economy. For example, it is repurchasing dollar bonds cheaper and refinancing domestic debt to try and boost fiscal resilience.
Bitcoin Accumulation During Changes
Although the Salvadoran authorities are reducing some Bitcoin-related operations, they continue to purchase one Bitcoin per day to their reserves. It currently has about 5,969 BTC, equivalent to around $602 million.
President Nayib Bukele is still the leading supporter of Bitcoin adoption, with influential individuals such as Elon Musk endorsing the country’s Bitcoin approach.
IMF’s Position and Future Financial Prospects
After announcing great optimism, the IMF has remained critical of theBTC highlighting its speculative risks. The organization pointed out that all the agreed actions would reduce such risks and create the proper groundwork for more credits.
The funds to be provided by APP are to amount to $1.4 billion the necessary financing is being granted with the approval of the IMF Executive Board, this financing plan is to exceed $3.5 billion. The accord has the intention to reduce El Salvador’s debt/GDP ratio and strengthen international financial cooperation and assistance.
Max Keiser, Bitcoin adviser to President Bukele dismissed the IMF the same way, emphasizing that their use of Bitcoin in the country is voluntary. It can be considered as an important step in the cooperation between El Salvador and the IMF as the country considers using Bitcoin and its fiscal policy.
