El Salvador in talks with IMF over future of Bitcoin in the country

After El Salvador accepted Bitcoin as a legal tender in 2021,  it could potentially pull back on the mandate as it continues discussions with the International Monetary Fund (IMF).

It’s reported the country could dial down Bitcoin’s role as a legal tender as it seeks a $1.3 billion loan from the IMF, the Financial Times reported.

The publisher has cited two people ‘close to the talks’ as it suggests an agreement could be reached within the next two to three weeks.

The discussions are thought to be taking place currently as an IMF mission arrived in San Salvador to finalize the details with President Nayib Bukele’s government. However, an IMF spokesperson declined to comment in the piece from FT as they cited the fund’s policy of not speaking about ongoing negotiations

If the two can come to a decision and a lending package is approved by the IMF board, the Central American country could see a return to the international financial fold.

It could also see the legal requirement for businesses to accept Bitcoin to be dropped, making it voluntary instead.

In June of 2021 it became the world’s first country to officially adopt the digital currency as legal tender, but it was opposed by the IMF.

A statement released by the organization in August of 2024 explains its concerns: “On Bitcoin, while many of the risks have not yet materialized, there is joint recognition that further efforts are needed to enhance transparency and mitigate potential fiscal and financial stability risks from the Bitcoin project. Additional discussions in this and other key areas remain necessary.

“The Fund team looks forward to maintaining its close engagement with the Salvadoran authorities with the objective of reaching agreement on policies that will ensure stability and prosperity for the benefit of all the Salvadoran people.”

In October, the Washington-based organization urged El Salvador to strengthen its Bitcoin oversight.

In the same year that Bitcoin became legal tender, the President of El Salvador had also announced that he planned to build ‘Bitcoin City’ in the southeastern region of La Unión.

He stated it would be a tax haven and funded by a $1 billion Bitcoin bond issued by the state-owned power company LaGeo, but the project has faced criticisms.

The uptake in cryptocurrency in the country hasn’t been substantial, as most people still rely on the dollar despite the potential to use Bitcoin.

According to a study by the University of Central America’s public opinion institute, some 88% of Salvadorans didn’t use Bitcoin in 2023.

Featured Image: via Trump White House on Flickr, official photo by Shealah Craighead

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