IMF Withholding Financial Aid for El Salvador Due to Its Bitcoin Alliance: Report

The financial dalliance of El Salvador with BTC is not a decision that has sat well with the IMF.

Written by Radhika Parashar, Edited by Siddharth Suvarna | Updated: 10 April 2024 17:59 IST

IMF Withholding Financial Aid for El Salvador Due to Its Bitcoin Alliance: Report

Photo Credit: Facebook/ Nayib Bukele

Bukele has decided to keep purchasing 1 BTC token until the asset becomes unaffordable

Highlights

IMF said it is concerned about the financial risks linked to BTC
BTC is used as a legal tender in El Salvador
El Slavador recently approved BTC bonds

El Salvador is reportedly in a tense situation with the International Monetary Fund (IMF) for merging Bitcoin with its core financial system. Bitcoin, the oldest and the most expensive cryptocurrency, is accepted as a legal currency in El Salvador alongside the US Dollar, which is the nation's fiat currency. This financial dalliance of El Salvador with this highly volatile digital asset is not a decision that has sat well with the IMF.

The IMF has asked El Salvador to change its policies around Bitcoin in order to get the aid of $1.4 billion that it needs to expedite public debt payments and other financial obligations. Given El Salvador's firm pro-crypto stance, its negotiations with the IMF are currently at a standstill, a report by international publication InfoBae said this week.

Last week, El Salvador received a fresh warning from an IMF associate. The official has clearly communicated to Salvadoran President Nayib Bukele that the institute is concerned about the financial risks associated with Bitcoin.

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Despite its ongoing tussle with the IMF, Bukele has kept El Salvador's engagement with Bitcoin ongoing. In 2022, Bukele set up a National Bitcoin Office delegated with the task of maintaining all official records related to the digital asset.

The Salvadoran President approved Bitcoin bonds to allow the country to gather capital to pay debts for the country, while also bringing in contribution for Bukele's ambitious special economic zone called the ‘Bitcoin City', via ‘Volcano Tokens'.

Around April last year, when Bitcoin was trading lowly at around $29,449 (roughly Rs. 24.5 lakh), El Salvador recorded an 18 percent drop in BTC-based remittances.

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Despite this drop, Bukele has reportedly vouched to keep purchasing 1 BTC token daily until the asset becomes unaffordable.

This continues until #Bitcoin becomes unaffordable with fiat currencies. https://t.co/nzeynjXcFk
— Nayib Bukele (@nayibbukele) March 16, 2024

Under the circumstances, it remains unclear by when the IMF consider processing the financial aid that El Salvador requires.

Meanwhile, the IMF has been working with the G20 group of nations to formulate rules to oversee and regulate the volatile digital assets sector. The organisation has also teamed up with the Financial Stability Board (FSB) to draft these rules.

The IMF is also working on a new platform to enable international transactions through CBDCs.

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Further reading: Cryptocurrency, Bitcoin, El Salvador, IMF

Radhika Parashar

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Radhika Parashar is a senior correspondent for Gadgets 360. She has been reporting on tech and telecom for the last three years now and will be focussing on writing about all things crypto. Besides this, she is a major sitcom nerd and often replies in Chandler Bing and Michael Scott references. For tips or queries you could reach out to her at RadhikaP@ndtv.com. More