El Salvador secured a $1.4b IMF Loan by reducing its controversial bitcoin policy. The international financial organization highlighted Wednesday the reduced risk from Bitcoin adoption, as businesses in El Salvador now have the choice to decline it.
The lender also praised government efforts to improve fiscal stability, stimulate the economy, lower inflation, and address short-term debt.
The government of President Nayib Bukele has relaxed its Bitcoin policies. This was a major obstacle in previous negotiations. The private sector can now decide if it wants to accept cryptocurrency under new legal reforms. The IMF has stated that the risks associated with El Salvador’s Bitcoin Project have “significantly diminished.”
The government will also gradually reduce its involvement in the Chivo crypto-wallet, which has been plagued by many technical issues.
El Salvador’s Bitcoin Strategy Drawn IMF Warnings, Moody’s Downgrade
El Salvador’s relationship to the IMF grew tense when Bukele declared Bitcoin legal tender on Sept. 20, 2021. Bukele announced in Nov. 2022 that the government would purchase 1 BTC per day.
The IMF consistently expressed concerns regarding the economic and legal challenges of adopting Bitcoins as a legal tender. They cited significant macroeconomic and financial risks. Moody’s, for example, downgraded El Salvador and attributed the decision to Bukele’s policies fiscally and Bitcoin adoption.
has also repeatedly urged El Salvador to review its Bitcoin policy . The fund recommended reducing the Bitcoin Law’s legal tender status by dissolving the trust fund for Bitcoin conversion worth $150 million and refraining from issuing Bitcoin-backed bonds.
Bukele Celebrates Bitcoin Surge; IMF Deal Waits for Final Approval
Bukele, who announced earlier this month that El Salvador had seen its crypto holdings more than double in value, credited political opponents for discouraging Salvadorans from benefiting from Bitcoin’s rise. He blamed political rivals for preventing Salvadorans from profiting from Bitcoin’s increase.
The agreement is still awaiting approval by the IMF executive board but it addresses an important concern for investors on El Salvador’s bonds markets. The board will review and approve the programme by early February if the agreed-upon measures are implemented.
