According to reports, El Salvador’s Bitcoin adoption is reportedly impeding its credit prospects with the International Monetary Fund (IMF).
The financial agency has demanded changes from the El Salvador government to ease its Bitcoin law to receive a $1.4 billion credit line for expediting public debt payments and other obligations.
Negotiations between the IMF and El Salvador are reportedly at a standstill as the IMF demands changes in the country’s posture on Bitcoin. Talks had been suspended since two years ago following President Nayib Bukele’s decision to adopt Bitcoin as a legal tender in the Central American country.
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Recall that following the adoption of Bitcoin as a legal tender in El Salvador in 2021, the IMF urged President Nayib to ditch that move. IMF directors stressed that there are large risks associated with the use of bitcoin on financial stability, financial integrity, and consumer protection, as well as the associated fiscal contingent liabilities.
IMF also expressed concerns that the financial integrity of the country could become compromised by making bitcoin a legal tender in the absence of anti-money laundering laws and regulatory measures. Issues like tax evasion and terror financing will have to be countered with robust systems and laws.
Given Bitcoin’s high price volatility, the IMF said that its use as a legal tender entails significant risk to consumer protection, financial integrity, and financial stability, adding that its use also gives rise to fiscal contingent liabilities.
IMF, which assists member nations with financial deficits and provides technical advice, published a blog in July 2021 pointing out its concerns on the adoption of Bitcoin as a national currency. It further discouraged other nations from considering such a move.
Recall that in 2021, in order to promote financial inclusion, job creation and facilitate remittances, El Salvador adopted the use of Bitcoin, making it the first country to adopt the crypto asset as a legal tender.
At the same time, the country launched Chivo Wallet, an app that offers many of the same benefits as a central bank digital currency (CBDC), including accessibility and the ability to pay peers and firms and make deposits and withdrawals both in U.S. dollars (the country’s official currency) and in Bitcoin.
El Salvador Bitcoin adoption which initially did not pay off, has recorded significant progress lately. In March 2024, the cumulative value of Bitcoin assets held by El Salvador surpassed the significant milestone of $400 million, worth 5,700 BTC. This was revealed by the country’s president Nayib Bukele on X.
In the same month, Bukele stated that the country would keep buying 1 BTC per day until it becomes unaffordable with fiat currencies.