El Salvador To Change BTC Policy to Access IMF Loan of $1 Billion

El Salvador classified Bitcoin as legal tender in 2021, making it a global pioneer. But that seems to be changing. In return for a billion-dollar loan from the IMF, Bitcoin is set to lose its special status in the country.

News about El Salvador rarely comes without Bitcoin (BTC):

In 2021, President Nayib Bukele pushed through the acceptance of Bitcoin as legal tender and presented plans to attract the crypto industry. This put El Salvador on the forefront of Bitcoin. But now Bukele is likely to have to backtrack, as the Financial Times reports. According to the report, the government is prepared to change its Bitcoin policy in return for a billion-dollar loan from the International Monetary Fund (IMF).

Specifically, it was agreed that companies and the state in El Salvador would no longer have to accept Bitcoin as a means of payment in the future, but that BTC would again become a voluntary option. According to the business newspaper, this is the IMF’s precondition for a loan of 1.3 billion US dollars and future credit lines. The negotiating partners did not want to comment on the report. The IMF had sharply criticized El Salvador’s Bitcoin rate and, according to the newspaper report, had stopped granting loans since 2021.

In addition to the turnaround in Bitcoin policy, the IMF is demanding that El Salvador reduce its budget deficit by 3.5 percent in the coming years, increase its cash reserves and pass anti-corruption laws, it continues. The deal is basically ready for signature and could be sealed before Christmas. El Salvador has had sobering experiences with Bitcoin as legal tender. A first study in 2022 showed that at most 20 percent of citizens used Bitcoin as a means of payment in everyday life. A second study in 2023 came to a similar result.

But President Nayib Bukele enjoys playing a special role in the global Bitcoin community. Just last week, Bukele explained on X how the state’s Bitcoin investments are proving profitable. El Salvador has invested almost 270 million US dollars in Bitcoin since 2021 and has now made a theoretical profit of a good 330 million US dollars – an increase of 127 percent. With a gross national product of around 15 billion US dollars annually, the state’s Bitcoin reserves in Central America are neither a small matter nor a major issue.

Conclusion: El Salvador urged by IMF to turn around on Bitcoin

Nayib Bukele governs El Salvador with an extremely heavy hand and has been able to curb rampant crime. But domestic political realities have prevented hoped-for investments by the crypto industry, and plans for a “Bitcoin City” and BTC mining with volcanic energy are no longer being pursued aggressively.

Now it is up to Bukele to give in to the IMF on the subject of Bitcoin and to benefit from cheap loans again. There is a joke in the crypto scene that El Salvador could use the prospective IMF loans to increase its Bitcoin reserves. However, the IMF is likely to rule this out – it is more likely that the US dollar will once again become the sole legal tender in El Salvador and the role of Bitcoin will be downgraded to that of a store of value.

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(Featured image by Luis Rodriguez via Unsplash)

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