El Salvador is on the verge of inking a $1.3 billion deal with the IMF in the upcoming weeks. The deal, however, has certain stipulations, one of which involves amending the nation’s Bitcoin law. Presently, businesses in the country are mandated to accept Bitcoin as payment, but under the new terms of the deal, this will turn into an optional practice.
As per a report by the Financial Times, the IMF has voiced concerns regarding the risks Bitcoin presents to El Salvador’s financial stability, and this proposed amendment aims to allay those concerns. If everything proceeds as anticipated, this agreement could potentially unlock an additional $2 billion from the World Bank and the Inter American Development Bank in the next few years. The final seal of approval for this would come from the IMF’s board. In essence, this deal could mark El Salvador’s reentry into the international economic arena after a tumultuous period since it made Bitcoin a legal tender in 2021.
In addition to the IMF deal, the government has committed to reducing its budget deficit to 3.5% of GDP over a three-year period. This is to be achieved through a combination of expenditure cuts and tax hikes. Moreover, the country intends to boost its reserves from $11 billion to $15 billion.
Since the legalization of Bitcoin in 2021, the IMF has been consistently critical of the move, emphasizing the impact on stability and consumer interests. The agency made its stance clear when it recommended that the Salvadoran government relax the legal obligation for businesses to accept the cryptocurrency.
Despite Bitcoin reaching a new all-time high last month, following the concluded election that led to President Trump’s victory, the majority of Salvadorans still favor using the US dollar. Nevertheless, the government has persisted in purchasing Bitcoin and holding it as a reserve. Bukele recently announced that its holdings were valued at over $600 million and had experienced a 127% growth.
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