Cash-strapped South American country agrees to sell or abolish its Bitcoin wallets after signing deal with IMF
El Salvador's efforts in the digital currency Bitcoin may wane after signing an agreement with the International Monetary Fund (IMF).
Reuters reported that the cash-strapped country has agreed to sell or abolish its official Bitcoin wallet, known as Chivo. The IMF said that as part of its agreement with Tibo, Tibo would be “gradually decommissioned”.
El Salvador made history in 2021 by becoming the first country in the world to accept Bitcoin as legal tender after the digital currency was officially adopted on Tuesday, September 7, 2021.
legal tender
In June 2021, El Salvador's Congress agreed to support President Nayib Boucle's efforts to adopt cryptocurrencies.
However, the move was highly controversial at the time, sparking mass protests and concerns that it would bring instability and inflation to the poor country.
In fact, the World Bank (an international lender to developing countries) refused to help El Salvador introduce Bitcoin as a legal tender due to concerns about the transparency and environmental impact of Bitcoin mining. .
Then, in January 2022, the IMF urged El Salvador to reverse its decision to make Bitcoin legal tender.
Ratings agency Fitch also warned of increased risks for banks, saying the move would open the floodgates to money laundering and increase the likelihood that banks would be exposed to regulatory risks.
Despite this, President Bukele continued to push for Bitcoin adoption, even proposing in November 2021 to build a brand new city funded by Bitcoin bonds.
poor people
Essentially, President Boucle saw Bitcoin as a way to help low-income countries like El Salvador transition from a primarily cash economy to a digital economy where personal bank accounts are effectively smartphones.
Please note that approximately 70 percent of El Salvador's citizens do not have bank accounts or credit cards.
The country replaced its currency, the colon, with the US dollar in 2001.
Historically, the country has had a primarily agricultural-based economy, but has suffered from chronic political and economic instability, including coups. It has also suffered from high rates of poverty, inequality, and gang-related violent crime.
It is said that remittances account for over 20% of El Salvador's GDP, and before the introduction of Bitcoin, existing services took several days to arrive and had to be collected at a physical location. They could charge fees of 10% or more for remittances.
IMF agreement
But El Salvador, currently short of cash, has announced it will sell or abolish its official digital Bitcoin wallet (Chivo), Reuters quoted officials as saying on Thursday, a day after reaching an agreement with the IMF.
Stacey Herbert, director of the National Bitcoin Authority, reportedly said that the virtual currency will remain legal tender and that the government will continue purchasing Bitcoin as a strategic reserve, likely at an accelerated pace.
El Salvador signed a $1.4 billion loan deal with the IMF on Wednesday after agreeing to scale back its bitcoin policy.
“The Salvadoran authorities and the IMF staff team have reached staff-level agreement on a 40-month extension arrangement under the Extended Fund Facility (EFF) for approximately USD 1.4 billion (equivalent to SDR 1.0339 billion, or 360 percent of the allocated amount). '' to address balance of payments needs and support governments' economic reforms,'' said Luis Cubedu, IMF's Western Hemisphere deputy director, and Rafael. Espinoza, head of the El Salvadoran delegation.
“The agreement is subject to approval by the IMF Executive Board and subject to the implementation of agreed proactive measures,” they said.
“The program is also expected to facilitate additional financial support from the World Bank, the Inter-American Development Bank, and other regional development banks (Central American Bank for Economic Integration, CABEI, Latin American and Caribbean Development Bank, CAF). “The total funding package during the program period totals over USD 3.5 billion,” they added.
