The legislative assembly of El Salvador has swiftly approved significant alterations to its unique national Bitcoin law following a $1.4 billion loan agreement with the International Monetary Fund (IMF).
The new Bitcoin reform aims to balance the country’s cryptocurrency framework with broader financial objectives and address concerns raised by the IMF regarding the volatility and risks associated with the crypto token.
In an update to the national crypto policies, El Salvador made Bitcoin acceptance voluntary for merchants, limited public sector involvement in Bitcoin-related activities and phased out the government’s Chivo wallet in favour of private-sector solutions. Besides, the country enhanced its regulatory oversight and established clearer parameters for businesses involved in cryptocurrency transactions.
Despite all these adjustments, Bitcoin will remain legal tender in El Salvador, and the government plans to continue its Bitcoin purchases to bolster strategic reserves. As of today, El Salvador holds over 6,0oo bitcoins valued at around $632 million.
El Salvador was the first country to introduce Bitcoin as legal tender, obliging local merchants and institutions to accept this cryptocurrency as a means of payment for goods, services, and debt repayment. However, a few years later, the IMF pushed the country to scale back its policies in exchange for hefty financial assistance.
Dire economic circumstances and low financial inclusion were the issues that prompted El Salvador to experiment with Bitcoin in the first place. The initiative had some success but apparently wasn’t enough to solve all the nation’s problems. For instance, the country’s public debt-to-GDP ratio exceeded 80% in recent years. Thus, El Salvador applied for a $1.4 billion loan from the IMF to address its economic challenges, including high debt levels, fiscal deficits, and financial instability.
However, the international credit institution warned that Bitcoin adoption could pose macroeconomic and financial risks, challenging El Salvador’s possibility to access traditional financing. It rejected El Salvador’s loan requests a few times. Therefore, the local government needed to restore confidence in its economic policies.
Amendments to existing Bitcoin laws were an important prerequisite for getting the loan. Reportedly, they were approved by the legislative assembly within minutes of passing the bill.
Nevertheless, the country remains loyal to its commitment to integrating Bitcoin into the national financial strategy. President Nayib Bukele keeps promoting Bitcoin as a tool for financial inclusion and economic growth, with a strong potential to help the unbanked and attract investment.
Despite his optimism, widespread Bitcoin adoption remains limited even within the country, not to mention globally, with many Salvadorans still hesitant or unfamiliar with cryptocurrency. The reform supporters believe it will make Bitcoin rules clearer and add security for both businesses and consumers, reducing confusion and possibly driving adoption.
