El Salvador, renowned as the first nation to adopt Bitcoin as legal tender, appears to be re-evaluating its stance on cryptocurrency under mounting pressure from the International Monetary Fund (IMF).
The country is reportedly in discussions to secure a $1.3 billion loan from the IMF by agreeing to amend its Bitcoin Law. According to sources cited by the Financial Times on December 9, these changes may relax the current mandate requiring businesses to accept Bitcoin, instead making its use optional.
Negotiations are expected to conclude within the next two to three weeks. If successful, the agreement could unlock an additional $1 billion in financing from the World Bank and another $1 billion from the Inter-American Development Bank over the coming years.
IMF’s Persistent Criticism of Bitcoin Adoption
The IMF has consistently opposed El Salvador’s embrace of Bitcoin, warning of the potential financial and economic risks associated with its use as legal tender. When El Salvador enacted its Bitcoin Law in September 2021, the IMF voiced concerns over the law’s impact on financial stability and operational challenges for citizens and businesses.
Ahead of the law’s implementation, the IMF highlighted the complexities of allowing payments in both Bitcoin and fiat currency, stating:
“If goods and services were priced in both a real currency and a crypto asset, households and businesses would spend significant time and resources choosing which money to hold as opposed to engaging in productive activities.”
More recently, in February 2023, the IMF urged El Salvador to address risks tied to its Bitcoin strategy, arguing that the anticipated benefits had not materialized. At the time, Bitcoin was trading near $21,600, based on CoinGecko data.
El Salvador’s Bitcoin Accumulation
Since passing its Bitcoin Law in 2021, El Salvador has steadily built its Bitcoin holdings. The government made its first purchase of 200 BTC in September 2021 and continued to accumulate, committing to buy one Bitcoin daily. By November 2024, El Salvador’s reserves had reached 5,942 BTC.
This strategy has recently borne fruit, as Bitcoin’s price surged past $100,000 in early December 2024, pushing the country’s unrealized gains from its BTC holdings to over $300 million.
Discussions about the $1.3 billion IMF loan and potential amendments to the Bitcoin Law have reportedly been ongoing since at least October 2024, underscoring the delicate balance between El Salvador’s cryptocurrency ambitions and the demands of traditional financial institutions.
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