The International Monetary Fund is willing to provide El Salvador with a $1.3 billion loan, but the nation must meet two demands. First, El Salvador must commit to reducing its budget deficit to 3.5% of GDP over the next three years. The second requirement is for El Salvador to begin backing away from bitcoin.
El Salvador declared bitcoin legal tender in 2021. The nation holds a bitcoin Treasury worth over $600 million as of lately with bitcoin’s recent price spike and has been purchasing about 1 btc per day. President Nayib Bukele recently took to social media to declare the success of his bitcoin adaptation, claiming gains of over 127%. Yet, the public has not largely adopted the new currency. In fact, the Central American University conducted a study in January that revealed 88% of citizens have not used bitcoin in transactions over the previous year.
Under the new IMF requirement, El Salvador must prohibit the legal requirement that states businesses must accept bitcoin as payment. Under this premise, bitcoin could not truly be considered legal tender.
As I have said, global organizations will not permit crypto to operate freely outside their control. I must agree with the IMF that Bitcoin’s volatile pricing presents financial instability and exposes government revenue to greater foreign exchange rate risks. Bitcoin is merely a trading vehicle and not a proper currency. However, the IMF also states that it is concerned about anti-money laundering practices. which simply means they are concerned that they cannot tax it.
Taxation goes hand in hand with lowering the budget deficit, as the nation has been steadily increasing tax revenue. Tax revenues reached 17.64% of GDP in 2017, later advancing to 19.75% in 2022. The government has several measures in place for tax evasion and has improved its digital taxpayer registry to see who has underpaid. There is hope that the recent discovery of gold will offset the hunt for taxation, and the president does seem to be a reasonable man. Perhaps El Salvador will not require a loan if it has truly found trillions worth of gold. It appears that Nayib Bukele will not back away from his stance on bitcoin either way.
