According to reports from the Financial Times citing informed sources, El Salvador is expected to reach an agreement with the International Monetary Fund (IMF) on a $1.3 billion loan program within the next two to three weeks in exchange for changing its practice of using Bitcoin as legal tender and reducing the government deficit.
IMF suggests that El Salvador regulate the Bitcoin ecosystem.
El Salvador became the first country in the world to adopt Bitcoin as legal tender in September 2021, despite the IMF opposing El Salvador's adoption of digital currencies due to risks to financial stability and credibility. The IMF has repeatedly called for El Salvador to strengthen its regulatory framework and regulate the country's Bitcoin ecosystem.
At a press conference in October this year, IMF spokesperson Julie Kozack suggested that El Salvador should not only narrow the scope of its Bitcoin law but also limit public sector exposure to the cryptocurrency.
El Salvador will abandon the legal requirement for businesses to accept Bitcoin as a payment method.
Reports indicate that a delegation from the International Monetary Fund has arrived in El Salvador to finalize the details of an agreement with President Nayib Bukele's government. Informed sources state that the deal is expected to provide $1 billion loans from the World Bank and the Inter-American Development Bank over the coming years. An IMF spokesperson declined to comment, citing the organization's policy of not discussing ongoing negotiations.
The loan program must be approved by the IMF board, according to informed sources, El Salvador will abandon the legal requirement for businesses to accept Bitcoin as a payment method. Additionally, the Salvadoran government will commit to reducing the budget deficit as a percentage of GDP by 3.5 percentage points over three years while taking measures to cut spending and raise taxes, through anti-corruption laws, and increasing reserves from $11 billion to $15 billion.
El Salvador invests in one Bitcoin daily.
Bukele has a good relationship with the next U.S. President Trump and Musk, as he attempts to reshape this impoverished Central American nation into a surfing and cryptocurrency paradise, being the first to use Bitcoin as legal tender and announcing plans to build a geothermal-powered 'Bitcoin City' on the slopes of a volcano.
However, most Salvadorans avoid using Bitcoin in their daily transactions and prefer to stick with the country's other legal tender, the U.S. dollar, while the plans for Bitcoin City have yet to materialize.
(Only 7.5% of Salvadoran respondents have used cryptocurrency trading, and President Bukele admits that Bitcoin has not yet become widespread.)
The Salvadoran government continues to buy Bitcoin as reserves. President Nayib Bukele announced El Salvador's 'national wallet' in March this year and stated that he would invest in one Bitcoin daily. According to Arkham data, El Salvador currently holds 5,960 Bitcoins, worth approximately $580 million.
El Salvador's sovereign bond prices are rising.
During his second term, President Bukele is committed to revitalizing El Salvador's economy and seeking foreign investment to increase its wealth. The banking sector has turned positive, with the country's risk rating falling from 3,500 basis points above U.S. treasuries in July 2022 to just 398 basis points last week.
El Salvador's sovereign bonds are currently trading around par value, ending the previous significant discounts. Bukele commented last week on the simultaneous rise in Salvadoran bond prices and Bitcoin, stating, 'This is the first time in history that Bitcoin has driven traditional market sovereign bonds up.'
This article 'El Salvador to ease Bitcoin policy to obtain IMF loans' first appeared in Chain News ABMedia.
