El Salvador continues to rely on Bitcoin despite IMF deal
El Salvador is committed to Bitcoin as an official means of payment despite securing a 1.3 billion USD loan from the International Monetary Fund (IMF). President Nayib Bukele has already announced new investment plans.
El Salvador distinguished itself in 2021 as the first country in the world to recognize Bitcoin as an official means of payment. Since then, the small Central American country has been closely observed, and for a while, it looked as if El Salvador was reaching its limits with its BTC experiment as well. Reports of unsustainable Bitcoin debts accumulated through Bukele’s financial policy were compounded by the fact that the IMF categorically classifies Bitcoin as too volatile for official use. Thus, a cooperation agreement was made dependent on El Salvador’s restrictive use of Bitcoin.
But now it seems that understanding has been reached. According to a report from financial news outlet Bloomberg, an agreement with the IMF has been concluded for a loan of 1.3 billion USD. An essential precondition was that El Salvador provide detailed information on Bitcoin’s use and stop accumulating new BTC positions with the loans. President Bukele has praised such transparency policies in recent days and denied wanting to rid the national wealth fund of Bitcoin.
Where does El Salvador stand with Bitcoin?
As of the end of 2021, El Salvador held around 2,380 Bitcoins in its national treasury, which President Bukele claimed had been purchased for an average price of about 19,000 USD. Today, the price for one Bitcoin is around 30,000 USD, meaning that despite interim fluctuations, a profit of around 50 percent has been realized on the holdings.
Moreover, the legalization of Bitcoin has led to noticeable investment interest in El Salvador. Bukele wants to create a “Bitcoin City” near a volcano in the east of the country and views Bitcoin as a tourist attraction. At the same time, fintech companies are exploring the possibilities of promoting Bitcoin use further in El Salvador. The app “Chivo,” developed by the government, is popular for Bitcoin transactions.
Nonetheless, El Salvador continues to carry a foreign debt burden of 18 billion USD, and not all international investors are confident in the BTC strategy. A glimmer of hope is that the negotiated IMF loan will now provide some financial breathing room. Given this situation, Fitch Ratings said that it is crucial for El Salvador to demonstrate that decisions concerning Bitcoin will be made responsibly in the future, despite the good current paper performance with BTC.
In conclusion, El Salvador is using China’s massive interest in Bitcoin to power its current policies. The IMF loan provides important relief to avoid national defaults. Observers assume that El Salvador’s pro-Bitcoin course will continue.
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