El Salvador plans to amend its Bitcoin law, making Bitcoin acceptance voluntary for businesses, as part of an agreement to secure a $1.3 billion IMF loan.
El Salvador is on the brink of securing a $1.3 billion loan from the International Monetary Fund (IMF), conditional on modifying its Bitcoin law to make Bitcoin acceptance voluntary rather than mandatory for businesses. The agreement is part of a broader package expected to unlock an additional $2 billion in funding from the World Bank and the Inter-American Development Bank.
El Salvador moves to make #Bitcoin acceptance voluntary to secure a $1.3B IMF loan, paving the way for more international funding. pic.twitter.com/3R8jGelurC
— TFTC (@TFTC21) December 9, 2024
Under the current Bitcoin law, enacted in June 2021, all Salvadoran merchants were legally required to accept Bitcoin as payment if they had the technological means to do so. However, the IMF has been a vocal critic of this policy, citing potential risks to financial stability and transparency. As part of the agreement, the Bukele administration will eliminate this mandate, making Bitcoin acceptance a voluntary choice for businesses.
In addition to revising the Bitcoin law, El Salvador will commit to reducing its budget deficit by 3.5% of GDP over three years through a combination of spending cuts and tax increases. Other conditions include bolstering the country’s foreign currency reserves from $11 billion to $15 billion and passing new anti-corruption legislation.
The IMF deal, expected to be finalized in the coming weeks, marks a significant step in El Salvador’s efforts to reestablish its position within the global financial system. This development follows years of criticism and relative isolation from international financial institutions due to the country’s Bitcoin adoption. According to sources close to the negotiations, an IMF spokesperson declined to comment, adhering to the organization's policy on ongoing discussions.
El Salvador’s embrace of Bitcoin has been both ambitious and controversial. President Nayib Bukele has touted Bitcoin as a means to promote financial inclusion, attract foreign investment, and reduce reliance on traditional currencies. The government has also accumulated Bitcoin as part of its reserves, with holdings valued at over $600 million as of November 2024, representing a 127% gain since the initial investments. Bukele has described the reserves as the country's “first Bitcoin piggy bank.”
Despite the global attention, Bitcoin adoption within El Salvador has been modest. Surveys indicate that most Salvadorans prefer to use the U.S. dollar for everyday transactions, and reports show limited use of the government’s Chivo digital wallet. A 2023 study by the Central American University found that 88% of Salvadorans had not used Bitcoin that year.
El Salvador’s economy has seen significant improvements under Bukele’s leadership, attributed to efforts to attract foreign investment and a crackdown on violent crime. The country’s sovereign bonds have recovered from deep discounts, now trading near face value. Bukele recently noted that Bitcoin's rally has coincided with improved sovereign bond performance, a first in traditional financial markets.
