Key Takeaways
- As per an arrangement to unlock a $3.5 billion loan from the IMF, El Salvador has agreed to make some concessions to its Bitcoin policies. This includes making BTC transactions voluntary in the private sector, accepting taxes in USD, and confining the public sector from Bitcoin.
- Stacy Herbert, director of El Salvador’s Bitcoin Office, asserted that Bitcoin will continue to be legal tender in the country and the government’s Bitcoin-related initiatives like capital markets and educational programs will remain unaffected.
- However, the government-controlled ‘Chivo’ wallet will be sold off or wound down as part of the IMF deal. The crypto wallet, launched to promote the country’s hyper-Bitcoinification in 2021 failed to take off, with 60% of users not making any transactions at all.
- El Salvador reportedly holds 5,968.77 BTC, valued at approximately $600 million, in its treasury. The Central American nation with a GDP of $36 billion is buying 1 BTC per day to hedge against inflation.
El Salvador is currently in the process of securing a $3.5 billion loan from the International Monetary Fund (IMF) and the World Bank. However, as part of the deal, President Nayib Bukele will have to make some concessions around his Bitcoin policies to receive the funding.
El Salvador Forced To Change Bitcoin Policies To Recieve IMF’s $3.5 Billion Loan
On Thursday, the director of the country’s Bitcoin Office, Stacy Herbert, wrote in an X post that the government-issued crypto wallet Chivo will be sold off or “wound down” as part of the IMF deal. Chivo was launched in late 2021 in a bid to spread Bitcoin adoption across the Central American nation. That same year, El Salvador became the first country to recognize BTC as legal tender.
Herbert highlighted that despite the government’s Bitcoin wallet service being offloaded, the cryptocurrency itself will remain a legal tender in the country. The IMF stated on December 18 that under its agreement, El Salvador will make Bitcoin acceptance voluntary for its private sector and that taxes will only be paid in U.S. dollars and not BTC.
In its document, the monetary corporation added that engagement in Bitcoin-related economic activities and transactions in and purchases of the crypto asset “will be confined” to the public sector.
El Salvador Buying 1 BTC Per Day, Holds Nearly $600 Million Worth of Bitcoin In Its Treasury
However, Herbert explained that despite the restrictions imposed by the loan agreement, El Salvador will continue to accumulate Bitcoin for the national treasury, possibly at an “accelerated rate”. Since declaring the cryptocurrency as legal tender, the Central American nation has been purchasing an average of one BTC per day. At press time, the government holds 5,968.77 BTC, worth nearly $600 million.
The Bitcoin advocate and host of the Orange Pill Podcast, alongside her husband, Bitcoin maximalist Max Keizer, underscored that El Salvador’s ongoing Bitcoin-related projects, such as the development of Bitcoin capital markets and educational programs will continue.
The IMF strongly opposed President Bukele’s Bitcoin-led initiatives ever since it was made legal tender in September 2021. This decision gave the flagship cryptocurrency the same status as USD, which is the nation’s official currency. In 2022, the global lender warned that El Salvador was incurring large risks associated with using BTC as a legal tender, especially considering the high volatility affecting its price.
On Wednesday, the IMF stated that the potential risks of the country’s Bitcoin projects will be “diminished significantly” in line with its policies.
Majority of Salvadorans Do Not Transact In Bitcoin, Signifying Chivo Wallet’s Failure
When the Chivo wallet was launched, the government offered Salvadorans $30 in BTC to sign up to it, but despite its efforts, the Bitcoin adoption on a national scale did not take off as widely expected. By mid-2022, over 60% of the wallet’s users were yet to make a transaction. According to the Central American University, 88% of Salvadorans who participated in a survey hadn’t used Bitcoin to make transactions.
During a recent speech, President Bukele acknowledged that introducing Bitcoin to the country has by far been the “most unpopular” measure that his government has taken.
Salvadoran authorities and a team from the IMF reached a “staff-level” agreement on a 40-month extended arrangement under the Extended Fund Facility (EFF) for about $1.4 billion in loans to address the balance of payments and support the government’s economic reforms. The IMF’s executive board needs to endorse the agreement in early February 2025 and its finalization would depend on the completion of the previously agreed-upon actions.
The loan program is expected to bring in additional financial support from the World Bank, the Inter-American Development Bank, and other regional banks, including the Central American Bank for Economic Integration (CABEI) and the Development Bank of Latin America and the Caribbean (CAF), who together will provide a financial package exceeding $3.5 billion over the duration of the 40-month program.
Eugene Epstein, head of trading and structured at Moneycorp, said that the government’s announcement that it would continue to make more Bitcoin purchases might be a way to counter any “negative blowback” to limiting Bitcoin usage in the country. He noted that given the size and terms of the deal, it was probably worth it for Bukele to accept it.
Bukele continues to hype up El Salvador’s status as a Bitcoin and crypto hub, with the country hosting the “Adopting Bitcoin” conference last month. It is also home to the so-called “Bitcoin Beach”, which is a surfing spot for tourists where all businesses have started to accept BTC as a medium of exchange.
At the time of writing, Bitcoin (BTC) has been trading at $95,316, down 6.18% in the last 24 hours.
