El Salvador has agreed to limit its Bitcoin activities in exchange for a $1.4 billion loan from the International Monetary Fund (IMF).
Agreement with IMF
Recently, El Salvador reached a staff-level agreement with the IMF for a 40-month Extended Fund Facility (EFF) arrangement to support the government's economic reforms. Approval of the agreement is subject to the IMF's Executive Board.
Policy Changes
As part of the agreement, businesses in the country will no longer accept Bitcoin, and the government's involvement in Bitcoin-related activities, including the use of the Chivo e-wallet, will be limited. Tax payments are to be made in U.S. dollars. These changes reflect an adjustment in the government's initial interest in Bitcoin aligning with the IMF's concerns about financial stability.
Long-term Strategy
In September 2021, El Salvador became the first country to adopt Bitcoin as legal tender. President Nayib Bukele's administration has promoted cryptocurrency to support financial inclusion and draw investment, though it has faced challenges like the volatility of Bitcoin and limited adoption among citizens.
Thus, the upcoming agreement with the IMF not only offers financial support but also addresses macroeconomic challenges facing El Salvador, such as rising public debt and inflation.
