El Salvador has reached a preliminary arrangement with the International Monetary Fund (IMF) on a $1.4 billion loan. Under the agreement, the Government must adopt some key measures to ensure that it can effectively use the funds to support its economic reform agenda, including some adjustments to its Bitcoin policy.
The country is still buying one bitcoin a day, now holding 5,969 BTC worth about $600 million.
Stacking!
Subject to approval by the IMF Executive Board, the deal would require El Salvador to implement measures to reduce government spending and improve its primary balance by approximately 3.5% of GDP over three years. The program is expected to help put the country’s public debt-to-GDP ratio on a downward trajectory after reaching 85% in 2024.
As part of the agreement, El Salvador would also agree to restrict the government’s use of Bitcoin and limit public sector participation in Bitcoin-related activities. This likely includes restrictions on the use of Bitcoin for government transactions and limiting the use of the Chivo wallet, the government-backed Bitcoin wallet.
Businesses and individuals will no longer be required to accept Bitcoin as legal tender; the country makes bitcoin bitcoin acceptance voluntary. These reforms aim to reduce the risks associated with Bitcoin as legal tender, which have long been a major concern of the IMF.
El Salvador, under the leadership of President Nayib Bukele, became the first nation to adopt Bitcoin as legal tender in September 2021. The landmark decision allowed the country to use bitcoin, alongside the US dollar, for everyday transactions.
The IMF initially called on El Salvador to completely reverse the legal tender status. However, it appears that the organization is now focusing on urging the country to strengthen its regulatory framework around Bitcoin.
The IMF has consistently warned that the legalization of Bitcoin poses risks to financial stability, market integrity and consumer protection due to its volatile nature. The organization urged the government of El Salvador to narrow the scope of the Bitcoin law, which involves limiting the exposure of the public sector to the cryptocurrency.
In recent discussions, the IMF has continued to have concerns about the risks associated with Bitcoin. The entity noted that while those had not yet materialized, further efforts were necessary to improve transparency and reduce potential fiscal and financial stability risks related to their use.
Push For Bitcoin Adoption Is Largely Negative
Initial excitement surrounding the legalization of Bitcoin has faded in the country that led to the national acceptance of the largest cryptocurrency. Bitcoin has seen limited adoption since it became legal tender in 2021.
Economic, social and technological barriers have limited the effective use of Bitcoin among Salvadoran people. The challenges exist despite the government’s efforts to drive adoption, through the introduction of the Chivo wallet.
The app designed to facilitate bitcoin transactions has recorded low user engagement. Reports show that 61% of Chivo users stopped using the app after spending their $30 sign-up bonus in Bitcoin.
On the business front, surveys have shown that only about 20% of businesses will accept Bitcoin as a form of payment by 2022. While some businesses in tourist areas have reported increased activity from cryptocurrency tourists, overall usage has remained low, and many reports have indicated that Bitcoin is not efficiently boosting tourism or economic growth as initially hoped.
However, that doesn’t stop the government from collecting Bitcoin. El Salvador still buys one bitcoin per day. The country continued this policy regardless of market conditions. President Bukele said that the government would hold these daily purchases until it is impossible to do so with fiat currency.
As of the latest data tracked by Arkham Intelligence, El Salvador has purchased 5,969 BTC worth approximately $600 million. As the market pumps, the nation looks ever smarter.
