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El Salvador is negotiating a $1.3 billion loan from the IMF that would require changes to Bitcoin legal tender laws. The country plans to make accepting Bitcoin voluntary for businesses to comply with IMF conditions.
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The FT reported on Monday that El Salvador has reached an agreement with the International Monetary Fund for a $1.3 billion loan program that would require amending its Bitcoin legal tender law and reducing its deficit, citing two people close to the talks. It is said that it is approaching.
The deal, which could be finalized within two to three weeks, could unlock an additional $2 billion in financing from the World Bank and the Inter-American Development Bank over the next few years.
Under the proposed terms, the Salvadoran government would change the legal requirement for businesses to accept Bitcoin as payment and instead make it voluntary.
The government also pledges to reduce the budget deficit by 3.5% of gross domestic product (GDP) over three years through spending cuts and tax increases, while increasing foreign exchange reserves from $11 billion to $15 billion.
President Nayib Boucle, who was recently re-elected with 85% of the vote, introduced Bitcoin as legal tender in June 2021, making El Salvador the first country to do so. The IMF opposes the move, citing risks to financial stability and soundness.
The government has been building up its Bitcoin reserves, with Bukele announcing last month that the country's holdings were worth more than $600 million, representing an increase of 127%.
El Salvador's fiscal outlook has improved, with its risk rating dropping from 3,500 basis points above U.S. Treasuries in July 2022 to 398 basis points last week. Sovereign bonds are currently trading close to their face value, and Bukele noted that “this is the first time in history that Bitcoin has boosted sovereign debt in traditional markets.”
Despite the promotion of Bitcoin, most Salvadorans avoid using it for everyday transactions. The US dollar remains the country's preferred legal tender.
This is a developing story.
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