- El Salvador may pull back on a mandate requiring businesses to accept bitcoin as payment, the FT reported.
- Sources expect this could unlock a $1.3 billion IMF loan.
- El Salvador embraced bitcoin as a legal tender in 2021, prompting IMF concerns.
El Salvador will likely dial down bitcoin's role as a legal tender in exchange for a $1.3 billion loan from the International Monetary Fund, The Financial Times reported.
Though a finalized deal still appears to be a few weeks away, sources told the FT they expect the government to waive a legal requirement that businesses accept bitcoin as payment. Under the terms of the potential agreement, accepting the cryptocurreny would instead be voluntary.
El Salvador would additionally need to slash its budget deficit by 3.5 percentage points over three years, increase its reserves, and pass anti-corruption legislation.
In exchange, the country is expected to secure an additional $2 billion worth of loans from the World Bank and the Inter-American Development Bank over several years.
The IMF has been a vocal opponent of El Salvador's crypto-friendly legislation, frequently urging the country to remove bitcoin as a legal tender since it first gained the status three years ago. While President Nayib Bukele has worked to rebrand El Salvador as a crypto haven, the fund has warned of underlying risks to financial integrity and stability.
"With respect to the details on bitcoin what we have recommended is a narrowing of the scope of the bitcoin law, strengthening the regulatory framework and oversight of the bitcoin ecosystem, and limiting the public sector exposure to bitcoin," Julie Kozack, IMF's director of the communications department, said in an October press briefing.
The legislative change may not entirely matter to most Salvadorans, who still rely on the US dollar as the country's chief legal tender. Around 88% of citizens did not use bitcoin in 2023, according to survey data cited by Reuters.
Even so, the cryptocurrency's blowout gains this year have sparked excitement from the country's leader. With the token rallying over 131% year-to-date, El Salvador's reserves notched a value of over $600 million last month, Bukele said on social media.
Under his guidance, the country has been raking in bitcoin as a national investment, a stockpile he has pledged not to sell.
According to the FT, El Salvador's financial conditions appear to be improving in Bukele's second term. Sovereign bonds have started trading at face value after seeing steep discounts, while the country's credit rating has improved.