The Central American nation of El Salvador has agreed to a $1.4 billion loan deal with the International Monetary Fund (IMF), in which it is set to make acceptance of Bitcoin voluntary among merchants. The state will also slowly lessen its involvement in the limitedly adopted Chivo cryptocurrency wallet. From now on, Bitcoin-related economic activity by the public sector will also be limited. It’s a move designed to decrease El Salvador’s debt-to-GDP ratio over the next forty months.
The IMF assures that as a result of these agreements, the risks associated with the Bitcoin project will be greatly reduced. The private sector’s acceptance of Bitcoin will become voluntary as legal reforms are implemented. Taxes, on the other hand, will continue to be paid in US dollars, which is the official currency of the country.
In 2021, El Salvador began investing in Bitcoin, and currently holds about $602 million dollars’ worth. Despite the IMF deal, a spokesperson from The National Bitcoin Office stated the country would continue to accumulate Bitcoin, stating, “we will keep buying one Bitcoin a day (likely even more in the future), and we will not sell any of our current holdings”.
Although the IMF deal awaits the approval of IMF Executive Board, it finalizes a four-year negotiation. This includes a pivotal moment in 2021 when President Nayib Bukele made El Salvador the world’s first nation to adopt Bitcoin. The IMF has previously warned of more risks due to the speculative nature of Bitcoin. In addition to IMF’s loan, other global banks including the World Bank are set to offer the country loans for a total finance package exceeding $3.5 billion.
In response to the IMF’s announcement, President Bukele’s Bitcoin advisor, Max Keiser, called out IMF, stating that “Bitcoin use in El Salvador was always voluntary and its usage has never been higher and continues to grow”. But this perspective contrasts with a recent survey that shows 92% of Salvadorans do not transact with Bitcoin, a significant increase from an earlier survey in 2023.