Home Cryptocurrency El Salvador’s relationship with the IMF turns complicated after new Bitcoin bill

El Salvador’s relationship with the IMF turns complicated after new Bitcoin bill

by Serge Shlykov

This week the government of El Salvador’s President Salvador Sanchez Ceren announced the country would be withdrawing from the International Monetary Fund’s Special Drawing Rights (SDR) currency basket. The country was a part of the SDR basket since 2008, when the IMF created a currency basket to help countries with insufficiencies in their foreign exchange reserves.

In mid-February 2018, El Salvador approved a new law that will effectively ban the use of Bitcoin and other cryptocurrencies. The new law will require banks to verify users’ identities before allowing them to use digital currencies. The country’s Central Bank has also been granted the power to regulate digital currencies.

El Salvador has always been a small player in the global financial industry. Back in the day, this small country only had one bank and one American company, but those days are long gone. Today, El Salvador has 5 international banks and 20 international companies, including a major American bank. El Salvador’s financial sector is very diverse, and while other Latin American countries like Argentina and Venezuela have been under heavy pressure from the IMF, El Salvador has been able to evade the IMF’s clutches.

The International Monetary Fund (IMF), a global intergovernmental organization that supports economic structures and finance around the world, will hold talks with El Salvador after the country passed a bitcoin law today.

Bitcoin acceptance problem

According to Reuters, El Salvador already has a strained relationship with the IMF due to difficult economic conditions and currency problems, which complicates the new policy. This could be a long-term initiative or just a flashy PR tactic; either way, it shows a lack of coordination with hasty statements that run counter to an overall economic plan, shared Siobhan Morden, head of fixed income strategy for Latin America at Amherst Pierpoint Securities. Others, such as Carlos de Souza, portfolio manager at Vontobel Asset Management, said the shift to bitcoin has made the current tax evasion situation even more confusing. Cryptocurrencies are generally a very easy way to avoid taxes and a very easy way to evade authorities because it’s a completely decentralized system, De Souza said, adding: They may be involved in money laundering, tax evasion, etc.

Assumption: More memes

President Nayib Bukele said the bill to accept bitcoin as legal tender was passed in Congress this morning, adding that the asset can be used for any payment within the country and old debts can be repaid with bitcoins. The #Bitcoin law was overwhelmingly passed by El Salvador’s Congress. 62 out of 84 votes! The story! #Btc – Nayib Bukele (@nayibbukele) June 9, 2021 62 of 84 possible votes – a majority of lawmakers – voted in favor of the initiative, despite widespread concerns about the potential impact on El Salvador’s program with the IMF. However, this decision is not as unexpected as it may seem to some. The ability to trade in bitcoins should not be a cause for concern, Commerce and Investment Minister Miguel Cattan said at a press conference today. He said bitcoin is already in limited use in El Salvador and citizens are even using it to buy local snacks, despite criticism of slow speeds and high costs.

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A new bill has been filed in El Salvador that could introduce a new government backed cryptocurrency, and to some, this could be a step towards a future where cryptocurrencies can be used as a legitimate means of payment. However, the bill still has a lot of opposition from different parties, including the IMF which has threatened to revoke El Salvador’s membership in the organisation if the bill passes. The bill has met with opposition from the IMF and could possibly lead to the IMF withdrawing its support for El Salvador.. Read more about when will bitcoin run out and let us know what you think.

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