TLDR
IMF has reached a $1.4 billion staff-level agreement with El Salvador, requiring the country to limit Bitcoin’s role while maintaining its legal tender status
Businesses will no longer be required to accept Bitcoin, making its adoption completely voluntary
Government will reduce involvement in Bitcoin activities, including phasing out state-managed Chivo wallet
The deal could unlock additional $3.5 billion in international funding if approved by February 2025
Agreement includes fiscal reforms targeting 3.5% GDP improvement and reduction of public debt from 85% GDP peak
El Salvador has reached a preliminary agreement with the International Monetary Fund (IMF) for a $1.4 billion loan package, marking a turning point in the country’s approach to Bitcoin as legal tender. The staff-level agreement, announced on December 18, 2024, would require El Salvador to implement major changes to its Bitcoin policy while maintaining the cryptocurrency’s technical status as legal tender.
Under the proposed terms, businesses in El Salvador would no longer be required to accept Bitcoin as payment. This represents a substantial shift from the original Bitcoin Law, which made acceptance mandatory for all merchants. The change effectively transforms Bitcoin adoption into a voluntary choice for the private sector.
The government’s role in Bitcoin-related activities would also see major changes. The state-managed Chivo wallet, which has been central to El Salvador’s Bitcoin implementation, would be gradually phased out. Additionally, the government would limit its involvement in Bitcoin transactions and holdings, with taxes only being accepted in U.S. dollars.
These modifications to El Salvador’s Bitcoin policy come as part of a broader economic reform package. The IMF agreement outlines steps to improve the country’s fiscal health, with a target to enhance the primary fiscal balance by about 3.5 percent of GDP over three years.
The country’s public debt, which is expected to reach its highest point at 85 percent of GDP in 2024, would begin to decrease under the proposed reforms. These measures include reducing government spending on wages, cutting costs for goods and services, and decreasing transfers to municipalities.
El Salvador has received a $3.5 billion financing package from the IMF.
The agreement? Ditch Bitcoin. Reverse having Bitcoin as legal tender and delete their Chivo Bitcoin wallet.
The maxis always say “fiat is trash”, but look how quick Bukele got bought out by the globalist… pic.twitter.com/qGGlrOc351
— Jacob King (@JacobKinge) December 18, 2024
To strengthen financial stability, the agreement calls for increasing banks’ required liquidity buffers from 11.5 percent of deposits to 15 percent by June 2026. This change aims to better protect the banking system against potential economic shocks.
Transparency measures form another key component of the agreement. The government has committed to improving its reporting of debt, pension costs, and state-owned enterprise operations. Procurement contracts will receive enhanced scrutiny, and anti-corruption efforts will be strengthened.
The deal includes provisions for modernizing infrastructure and reducing bureaucratic obstacles to business operations. Climate adaptation strategies will also be implemented with support from development partners, showing a commitment to environmental considerations.
If approved by the IMF’s Executive Board in early February 2025, the agreement could unlock more than $3.5 billion in additional funding from other international financial institutions. This would provide El Salvador with substantial resources for implementing its reform agenda.
The country’s economic outlook shows some positive indicators despite recent challenges. Remittances from abroad remain strong, and tourism continues to contribute to economic growth, even as the country deals with temporary climate-related setbacks.
New regulatory measures for Bitcoin and other digital assets will be implemented to protect consumers and maintain financial stability. These regulations will align with international standards and address concerns about cryptocurrency volatility.
The agreement reflects a pragmatic approach to balancing innovation with financial stability. While Bitcoin retains its legal tender status, its practical role in the economy will likely diminish as both public and private sector involvement decreases.
Inflation rates in El Salvador have been declining, and the fiscal situation shows gradual improvement. Recent liability management operations have helped reduce the country’s near-term financing needs, creating a more stable financial environment.
The modifications to Bitcoin’s role have sparked varied reactions within the cryptocurrency community. Some view the changes as a retreat from El Salvador’s pioneering stance on cryptocurrency adoption, while others see it as a necessary compromise to secure international financial support.
The agreement’s implementation timeline extends into early 2025, with specific milestones and requirements that El Salvador must meet to receive the full funding package.
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