TL;DR Breakdown
- IMF has urged the El Salvador government to replace BTC as the legal tender.
- El Salvador had invested great sums of money in bitcoin previously, also announced plans for Bitcoin City.
Besides legalizing bitcoin, the government of El Salvador purchased a significant number of bitcoin during its bullish days. The boom in bitcoin’s value attracted many people as the President of El Salvador, Nayeb Bukele, also officially promoted it. The decision of some people who jumped in at the time was purely profit-driven as the crypto market was making great leaps and was expected to reach $100K in a year. The situation turned dramatic when instead of rising, it began to fall, and now its price has come below $40K.
This huge loss affected investors who had poured in their capital, thinking of bitcoin as a stable and secure investment. As the situation for cryptocurrency is fluctuating, there is an increase in people pulling off their funds to secure their capital. Notwithstanding, El Salvador recently purchased more bitcoin in dip, ignoring previous warnings from the public and the Internation Monetary Fund (IMF).
Here is a brief overview of why the IMF urges El Salvador to stop using BTC as their legal tender.
IMF – an introduction
IMF is a global monetary organization comprising about 190 countries. The main aim of this organization is to promote the monetary well-being of member countries and help them with financial advice. If the member countries face financial issues, they can request assistance from the IMF.
The organization came into being in 1944, and since then, it has developed into a huge body that covers monetary issues on a global level. Each member of the organization has voting rights based on the size of their economy and contribution to the organization. Thus, it is run democratically by the member states.
Part of their objectives was to prevent situations like the Great Depression, which was mainly the result of unplanned investments. So, the IMF observes member countries’ investments and helps them if they are in any trouble. In the same manner, the IMF has advised El Salvador to stop using Bitcoin as the state’s legal tender.
El Salvador’s use of Bitcoin as a legal tender
El Salvador became increasingly involved with bitcoin as the value grew in 2021. The central American country became interested in cryptocurrency as the government thought of it as a good medium for investment opportunities. To that extent, the country legalized bitcoin and also invested millions of dollars into it.
The situation was alright till December 2021, when there were minor fluctuations in the value of BTC. Thereafter, the crypto market began to decline, leading up to the current bear market. As bitcoin declined in value, the losses of investors increased. Likewise, the investments of El Salvador’s government in the coin reportedly dropped to almost half of the actual value.
This current state of bitcoin is one of the reasons the IMF discouraged El Salvador from legalizing the cryptocurrency. President Bukele has shown no sign of backing out from his bitcoin ambition, and that could disrupt the nation’s rapport with the IMF.
IMF urges El Salvador to stop using bitcoin
Last year, El Salvador reportedly sought a $1.3 billion loan from the IMF. However, the board had said the financial bail-out package would be granted if they fulfilled the requirements. One of these includes ripping off the bitcoin law, which will remove the crypto as the country’s legal tender.
So, the basic condition for El Salvador is revoking the cryptocurrency or forfeiting the $1.3 billion IMF loan. It is yet to be seen what decision El Salvador’s govt will take. IMF is urging them to do so to ensure financial stability because there is no surety about the value of bitcoin.
Final thoughts
IMF has urged El Salvador to remove bitcoin as the legal tender. The mentioned condition is the mainstay of the new deal between the IMF and El Salvador’s government. If the mentioned government accepts the deal, they will be able to secure a fund of $1.3 billion.
