Is El Salvador Scaling Back Its Bitcoin Ambitions With IMF Deal?

El Salvador, the first country to make Bitcoin a legal tender has finally reached a deal with the International Monetary Fund (IMF) for a $1.4 billion loan. It comes at a condition of scaling down its “Bitcoin Project”. As a result, the Latin American nation has also agreed to adopt measures that will improve the country’s debt-to-GDP ratio along with improving its balance. The deal comes following four years of rigorous negotiations between the two parties.

IMF Seeks Bitcoin Project Adjustments With El Salvador

The International Monetary Fund (IMF) has acknowledged El Salvador’s efforts to improve the country’s fiscal situation by reducing inflation, boosting economic growth, and managing its short-term debt obligations.

In the past, the country’s controversial adoption of Bitcoin in 2021 under President Nayib Bukele led to tensions with the IMF. This followed a series of credit downgrades and a decline in bond prices. However, the current deal is likely to resolve long-standing issues affecting El Salvador’s bond markets.

The downside to this agreement has been that Bukele government has made concessions regarding Bitcoin. Legal reforms will make the use of cryptocurrency voluntary for the private sector, addressing concerns previously raised by the IMF. Additionally, the IMF noted that the risks associated with El Salvador’s Bitcoin project would now be “significantly diminished” in line with its policies, per the Bloomberg report.

On the other hand, the Latin American country continues with its policy of adding one Bitcoin a day to its treasury. Recently, Elon Musk praised the country’s Bitcoin policy and the strategic Bitcoin reserve it has built over the past few years.

Unwinding the Chivo Wallet

The Latin American Bitcoin nation is willing to gradually scale back its involvement in the Chivo crypto wallet, a project launched in 2021 that has faced significant technical challenges. During its launch, Chivo offered $30 in BTC to new joiners to encourage sign-ups.

Although it initially attracted over 3 million participants, the long-term adoption of the digital wallet has been a bit underwhelming. The Chivo wallet saw fewer than 2% of remittances being sent via the platform by 2022.

Despite setbacks with the Chivo initiative, President Nayib Bukele has implemented a series of economic reforms, including buying back dollar-denominated bonds at a discount, restructuring pension debt, and refinancing domestic securities. Furthermore, the country welcomes new players with Bitget recently securing a license as a Bitcoin Service Provider in the country.

The development comes at a time when Bitcoin is facing strong selling pressure slipping under $100K levels amid the broader crypto market crash soon after the Fed’s rate cut announcement.