… and is on track to reach an agreement with the International Monetary Fund (IMF). There seems to be a shift in thinking regarding Bitcoin at the IMF. At least to some extent.
To err is just a stage on the way to understanding. Those who believe they never err will never emerge from the mire of mistakes.
The International Monetary Fund (IMF), one of the primary bodies of the global monetary system, has repeatedly chastised, criticized, and threatened El Salvador with repercussions for sticking to its Bitcoin strategy.
President Nayib Bukele was unfazed by this. In 2021, he made Bitcoin legal tender by law and established a national Bitcoin reserve. Contrary to all the pessimistic forecasts, the country did not go bankrupt; instead, its economic data is stronger than ever. If Bitcoin isn’t the solution, it’s at least not a problem either.
This seems to be something the IMF is now accepting. They recently issued a statement on the progress of monthly negotiations with the government of El Salvador regarding new loans and measures—and their tone towards Bitcoin has notably softened: they have „made progress“ on a program supported by the IMF to „strengthen public finances, boost bank reserves, improve transparency and governance, and minimize risks associated with Bitcoin.“
Overall, the IMF acknowledges good progress and efforts by El Salvador on all points. Concerning Bitcoin, they admit that „many of the risks have not yet materialized.“ However, there is a „shared recognition that continued efforts are necessary to increase transparency and mitigate potential risks to fiscal and financial stability.“
One might not describe it as enthusiastic support, but overall, the tone of the IMF has changed significantly. More importantly, El Salvador and the IMF are currently paving the way for the orderly integration of Bitcoin into the state’s governance.
El Salvador’s Bitcoin Reserves
Even though Bitcoin isn’t as widely circulated in El Salvador as many had expected, the Bitcoin strategy is proving successful.
President Bukele stayed true to his promise to buy one Bitcoin every day, making the chart of the country’s Bitcoin holdings look like a diagonally upward trending sawtooth.
Currently, El Salvador has 5,840.76 Bitcoins, worth around $335 million. With an average purchase price of $43,746, the country is approximately 35% in profit. On paper, this translates to about $110 million in gains.
Thus, the risks associated with Bitcoin have not only „not materialized,“ as the IMF puts it—Bitcoin has strengthened the country’s financial reserves, helping it to achieve goals agreed upon with the IMF.
But El Salvador is trying to leverage Bitcoin beyond this—specifically in international trade.
Bitcoin for Imports
Recently, the government of El Salvador reportedly proposed to Russia to balance mutual trade using Bitcoins. Both Russia and Ukraine are currently striving to win the country to their side, according to a Russian diplomat, while El Salvador prefers to remain neutral.
Trade between the two countries had surged from $6 million in 2018 to allegedly $100 million just before the invasion. However, it has drastically declined due to sanctions since then.
While Russian exports to El Salvador stayed at the same level, „imports have fallen to nearly zero,“ said the diplomat. Both Russian and Salvadoran companies would like to change this but face challenges due to the dollar, which is the official currency in El Salvador. Companies in the country want to be paid in dollars, which Russia cannot provide due to sanctions.
„As an alternative, El Salvador offers to use cryptocurrencies in trade,“ more specifically: Bitcoin. However, Russia rejects this. „Bitcoin is not widely used in our country, so we are looking for other ways to revive trade.“ The diplomat believes it would be „ideal“ to establish a bank in El Salvador „that processes transactions in various currencies—yuan, rupee, ruble.“ Yet, El Salvador maintains its connection to the dollar and to European and U.S. banks, deterring it from such a step.
The financial sanctions are evidently painful, and Russia refuses to accept the obvious solution, Bitcoin or other cryptocurrencies.