IMF relations were disrupted by El Salvador’s implementation of Bitcoin as legal tender, which raised concerns regarding the country’s credit rating and economic risks.
Scaling back its controversial bitcoin policies has enabled El Salvador to secure a $1.4 billion IMF loan. The international financial organisation emphasised on Wednesday the diminished risks associated with the adoption of Bitcoin in the country, as businesses now have the option to decline it.
The global lender also commended the government for its efforts to resolve short-term debt, stimulate the economy, lower inflation, and improve fiscal stability.
The government of President Nayib Bukele has relaxed its policies regarding Bitcoin, which were a significant impediment to previous negotiations. A new set of legal reforms has enabled the private sector to determine whether or not to embrace cryptocurrency. Consequently, the IMF declared that the hazards associated with El Salvador’s Bitcoin endeavour have “significantly decreased.”
Additionally, the government will progressively diminish its involvement in the Chivo crypto wallet, which has encountered numerous technical difficulties.
El Salvador’s relationship with the IMF was strained following Bukele’s decision to declare Bitcoin legal tender in September 2021. In November 2022, Bukele disclosed that the government intended to acquire one Bitcoin (BTC) per day.
The IMF has consistently expressed apprehension regarding the economic and legal obstacles associated with the adoption of Bitcoin as a parallel legal tender, citing substantial macroeconomic, financial, and legal risks.
Additionally, the fund has consistently encouraged El Salvador to modify its Bitcoin policy. It proposed the removal of the legal tender status of the Bitcoin Law, the dissolution of the $150 million Bitcoin conversion trust fund, and the prohibition of the issuance of Bitcoin-backed bonds.
Bukele disclosed that El Salvador’s crypto holdings had increased in value by more than twofold earlier this month, when Bitcoin’s price surpassed $100,000 for the first time. He attributed the dissuasion of Salvadorans from capitalizing on Bitcoin’s expansion to their political adversaries.
Although the agreement is still pending approval from the IMF’s executive council, it resolves a significant issue for investors in El Salvador’s bond markets. The program is anticipated to be reviewed and approved by the board by early February, provided that the agreed-upon measures are implemented.
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