Scaling Back Bitcoin’s Role
El Salvador, the first country to adopt BTC as legal tender, is revising its Bitcoin (BTC) policies amid pressure from the International Monetary Fund. The government reportedly plans to amend its BTC Law, shifting from mandatory to voluntary Bitcoin acceptance for businesses.
This major policy shift is also a requirement for a $1.3 billion loan from the IMF, according to an agreement reported by the Financial Times on Dec. 9. The deal opens the door to another $2 billion in funding from global institutions such as $1 billion each from the World Bank and the Inter-American Development Bank.
The deal is expected to be sealed in two to three weeks, which will grant the Salvadoran economy financial aid it really needs.
IMF’s Longstanding Opposition to Bitcoin
The IMF has been vocal about financial instability since El Salvador made the ground-breaking decision to adopt BTC in September 2021. The institution had pointed out that price quotations in various shops and service providers in both Bitcoin and fiat currencies could result in confusion and inefficiencies by businesses and households.
In 2023, the IMF warned that the adoption of BTC had yet to achieve any semblance of the expected economic benefits. They urged El Salvador to tackle risks linked with cryptocurrency. The warnings extend from very similar criticism since the BTC Law was under implementation in 2021.
El Salvador’s Bitcoin Strategy and Gains
Nevertheless, El Salvador has been investing heavily in BTC, despite external pressures. Accumulating 5,942 BTC since 2021, the government buys one BTC per day for its strategy.
With Bitcoin’s latest breakout above $100,000 this December 2024, the country recorded unrealized gains of over $300 million. These reflect the upside that El Salvador might finally see in its long-term strategy involving Bitcoin, though it was a rather volatile investment.
Wider Implications of the Loan Agreement
The modification to the BTC Law is one of the IMF requirements that also opens the doors to significant funding for the country’s development. The $1.3 billion loan and other funds from international lenders could stabilize El Salvador’s economy and raise its reputation on the international stage.
While the proposed policy changes might limit BTC role as legal tender, they signal a pragmatic approach by the Salvadoran government in balancing cryptocurrency ambitions with economic stability. This could set a precedent for other nations exploring Bitcoin adoption while navigating international financial pressures.
