El Salvador, the first country in the world to accept Bitcoin as legal tender, is reportedly scaling back its BTC ambitions under pressure from the International Monetary Fund (IMF).
El Salvador expects to reach an agreement with the IMF on a $1.3 billion loan deal in return for changes to its Bitcoin Law, the Financial Times reported on Dec. 9, citing people familiar with the matter.
If confirmed, the deal would obligate the government of El Salvador to drop a legal requirement for businesses to accept Bitcoin (BTC) as payment, making it a voluntary payment method.
Expected to be finalized in the next two or three weeks, the deal is also anticipated to unlock another $1 billion of lending from the World Bank and $1 billion from the Inter-American Development Bank over the next few years.
IMF repeatedly opposed El Salvador’s Bitcoin adoption
The IMF has been long opposing El Salvador’s adoption of Bitcoin, repeatedly warning the government and El Salvador President Nayib Bukele of the financial stability risks behind the decision to adopt Bitcoin as legal tender in September 2021.
As El Salvador was preparing to adopt Bitcoin law in July 2021, the IMF warned about customer difficulties related to the choice of Bitcoin versus fiat when it comes to payments. It stated:
“If goods and services were priced in both a real currency and a crypto asset, households and businesses would spend significant time and resources choosing which money to hold as opposed to engaging in productive activities.”
In February 2023, the IMF urged El Salvador to address Bitcoin-related risks, arguing that its adoption of Bitcoin “had not materialized.” At the time, Bitcoin traded at around $21,600, according to CoinGecko data.
Bitcoin (BTC) price chart since January 2014. Source: CoinGecko
El Salvador has been stacking Bitcoin since 2021
El Salvador has been purchasing BTC since adopting its Bitcoin Law in September 2021, making its first 200 BTC purchase on Sept. 6, 2021.
The local government has continued to acquire Bitcoin since, committing to buy one Bitcoin daily and accumulating 5,942 BTC as of November 2024.
Related: Former US Treasury Secretary slams national Bitcoin reserve as ‘crazy’
After Bitcoin rallied to all-time highs above $100,000 in early December 2024, El Salvador’s unrealized gains on its BTC purchases surged to more than $300 million.
El Salvador President Nayib Bukele announced the country’s first Bitcoin purchase. Source: Nayib Bukele
The IMF and the Salvadoran government have discussed the $1.3 billion loan and possible changes to El Salvador’s Bitcoin Law since at least October 2024.
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