El Salvador Economic Reforms: IMF-Backed Reform Plan Leads the Country to Restrict Bitcoin Activity
El Salvador has agreed to restrict domestic bitcoin-related activity in exchange for a loan package from the International Monetary Fund. A $1.4 billion loan is part of the IMF’s Extended Fund Facility, which is anticipated to last for 40 months and support El Salvador’s reform plan and balance of payments requirements. According to the IMF, the entire financing package is anticipated to be worth more than $3.5 billion, with additional funding coming from the World Bank, the Inter-American Development Bank, and other regional development banks.
Recognizing El Salvador’s pending macroeconomic and structural challenges, the IMF-supported program aims to strengthen fiscal and external stability and help create the conditions for stronger and more inclusive growth,
IMF
El Salvador’s Bitcoin Legal Tender Faces New Restrictions Under IMF Agreement
El Salvador became the first nation to formally accept Bitcoin as legal tender in June 2021. This move was made in response to President Nayib Bukele’s proposal to encourage financial inclusion. The goal of the nation’s most recent agreement with the IMF is to advance laws that drastically reduce the risks associated with El Salvador’s Bitcoin initiative. Among these is the voluntary adoption of Bitcoin by the private sector. Bitcoin-related activities, purchases, and transactions will be restricted in the public sector, according to the IMF. The additional restrictions on bitcoin activity, however, were not explained by the agency.
IMF Agreement Pushes El Salvador to Phase Out Chivo Wallet and Enforce Dollar-Only Tax Payments
The IMF fund will also instruct El Salvadorian citizens to pay taxes exclusively in US dollars and progressively discontinue the government’s involvement in Chivo, the government-sponsored Bitcoin wallet.
Transparency, regulation, and supervision of digital assets will be enhanced to safeguard financial stability, consumer and investor protection, and financial integrity,
IMF
The IMF’s agreement with El Salvador also aims to build fiscal and financial reserves, improve fiscal transparency, and lower governmental debt through fiscal reforms. The deal is still pending, though. El Salvador must carry out the previously agreed-upon activities before the IMF Executive Board would approve the deal in its final form, the release stated.
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