El Salvador’s Legislative Assembly has amended its Bitcoin Law, making it optional for merchants to accept Bitcoin. This change aligns with conditions set by the International Monetary Fund for a $1.4 billion loan aimed at bolstering the nation’s economy.
Historical context of Bitcoin adoption
In September 2021, El Salvador made history by becoming the first country to adopt Bitcoin as legal tender alongside the US dollar. The initiative, championed by President Nayib Bukele, sought to enhance financial inclusion and stimulate economic growth. However, the requirement for all businesses to accept Bitcoin faced criticism due to the cryptocurrency’s price volatility and the population’s limited understanding of digital currencies.
New changes in the Bitcoin Law
The recent legislative reform allows businesses to choose whether to accept Bitcoin and ends the government’s acceptance of Bitcoin for tax payments. Additionally, the government plans to reduce its involvement in Bitcoin-related activities, including scaling back the use of the state-sponsored Chivo Wallet app. These adjustments were pivotal in securing the IMF loan, which aims to stabilize El Salvador’s economy. The IMF had previously expressed concerns about the risks to financial stability and consumer protection posed by El Salvador's Bitcoin adoption.
Economic implications of the changes
By making Bitcoin acceptance voluntary and limiting government participation, El Salvador seeks to address these concerns while retaining Bitcoin's legal status.
The legislative changes will allow El Salvador to adapt its economic strategy and meet international requirements while maintaining Bitcoin’s status as legal tender.
