El Salvador has agreed with the IMF to scale back bitcoin activities for a $1.4 billion loan.
Additional funding could push the total financing package above $3.5 billion.
El Salvador, the first country to adopt Bitcoin as a legal tender, agrees to limit Bitcoin-related activities in exchange for a $1.4 billion loan from the International Monetary Fund (IMF).
Recently, El Salvador obtained a staff-level agreement with the IMF for a 40-month Extended Fund Facility (EFF) arrangement, to support the government’s economic reforms. The agreement approval is subjected to the IMF’s Executive Board.
As per the agreement, El Salvador has to agree that the businesses will no longer accept Bitcoin, and the government’s participation in Bitcoin-related activities, including the Chivo e-wallet, to be limited. Moreover, the tax payments will be in U.S. dollars.
This reflects a notable policy change, which balances the government’s initial interest in Bitcoin with the IMF‘s concerns about financial stability. Besides, the agreement also aims to stabilize El Salvador’s economy, such as rising public debt and inflation.
While the IMF’s approval is pending, it’s expected to bring additional funding. It will potentially bring the total financing package to over $3.5 billion.
International Monetary Fund stated,
“The program is also expected to catalyze additional financial support from the World Bank, the Inter-American Development Bank, and other regional development banks (Central American Bank for Economic Integration, CABEI, Development Bank of Latin America and the Caribbean, CAF) for a combined overall financing package of over US$ 3.5 billion over the program period.”
Furthermore, in September 2021, El Salvador became the first country to adopt Bitcoin as legal tender. President Nayib Bukele’s administration has promoted cryptocurrency to support financial inclusion and draw investment. However, it has faced challenges like the volatility of Bitcoin and the limited adoption among citizens.
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