Salvador - The Obligation To Accept Bitcoin Soon To Be Annulled?

Is El Salvador going to abandon its law requiring all businesses to accept bitcoin? This is what the IMF demands in exchange for its loans.

The IMF still hostile to bitcoin

The Salvador generates a lot of hopes for those who imagine that bitcoin could replace the fiat system.

This small Central American country is indeed the only one that has made bitcoin a fully-fledged currency. Using it does not trigger any taxes on capital gains.

By the way, the Czech Republic just took the leap by eliminating this tax when bitcoins are held for more than three years.

But El Salvador goes further since businesses are required to accept bitcoin (if they have the technical capabilities). In other words, all major brands like McDonald’s accept payments in bitcoins via the Lightning Network.

What’s more, the government of Nayib Bukele has been accumulating bitcoins since 2021 (one BTC per day). It also mines them thanks to geothermal energy. Its strategic reserve now exceeds 6,000 BTC, nearly ten times more than its debt to the IMF (~71 million $).

But rather than repaying this debt, El Salvador is looking to borrow significantly more from international institutions.

The IMF’s conditions

According to the Financial Times, El Salvador hopes to reach an agreement in the next two or three weeks on a loan of 1.3 billion dollars. One of the conditions would be to end the obligation for businesses to accept bitcoin.

A delegation from the IMF has arrived in San Salvador to finalize the details of the agreement. This should unlock an additional 1 billion dollars in loans via the World Bank. And then another billion from the Inter-American Development Bank.

Among other conditions, El Salvador will have to eliminate the legal obligation for businesses to accept bitcoin. However, they will be free to continue accepting it.

Furthermore, it should be noted that most Salvadorans use bitcoin very little for their everyday purchases. They prefer to stick to the dollar, the other legal currency of the country. Salvadorans quickly threw in the towel in the face of recurring increases in transaction fees, among other setbacks.

That being said, El Salvador is banking heavily on attracting wealthy bitcoiners along its coasts. The ability to spend bitcoins directly is one of its main selling points.

The next episode will follow. In the meantime, El Salvador’s borrowing suggests that it is difficult to do without the capacity to create money ex nihilo. As Michael Saylor puts it, bitcoin does not need to replace the fiat system to succeed.

In this regard, don’t miss our article: “Bitcoin, what it will be and what it will not be”.