IMF Advises El Salvador To Remove Bitcoin As Legal Tender
The International Monetary Fund has urged El Salvador to discontinue Bitcoin’s status as legal tender, expressing concerns around financial stability, integrity, consumer protection, and other risks.
The executive board of the International Monetary Fund in a statement suggested that El Salvador should remove Bitcoin’s legal tender status in the country. The IMF board raised concerns over risks the digital currency allegedly poses to financial stability and market integrity.
According to the statement, the recommendation from the IMF comes as directors seek to position the Central American country back to receiving a $1.3 billion loan it asked the international institution for last year as high debt leads to increasing financing needs.
Last September, El Salvador adopted Bitcoin as legal tender. Naturally, the IMF has been vocal against the move from the beginning, and on Tuesday said the adoption of bitcoin as legal tender by the Central American country “entails large risks for financial and market integrity, financial stability, and consumer protection” and fiscal contingent liabilities.
According to the statement, IMF directors “urged the authorities to narrow the scope of the Bitcoin law by removing Bitcoin’s legal tender status.”
Some directors also expressed concern over the idea of issuing bitcoin-backed loans, an initiative put forward by Bukele last year in cooperation with Blockstream, the company behind Bitcoin’s Liquid sidechain. However, directors didn’t specify what aspects of the bitcoin bonds they considered risky.
The IMF Directors, however, agreed on the importance of boosting financial inclusion and noted that digital means of payment, such as the Chivo e-wallet, could play this role. But, they emphasized the need for strict regulation and oversight of the new ecosystem of Chivo and Bitcoin.
El Salvador was the first country in the world to adopt bitcoin as a legal currency, granting it the status of legal tender in a nation that relies on remittances and has most of its population lacking access to traditional banking. Despite Bitcoin’s ability to bring equal financial access to people and improve the remittances experience, the Central American country is now pressed between its pioneering move and the need for capital as the IMF effectively tries to impose conditions on granting the loan.
El Salvador has purchased approximately 1,801 BTC to date, an amount currently valued at $65.3 million. That value represents losses of approximately 30% since purchase.
Regardless El Salvador continues to pursue new Bitcoin applications: it has opened volcano-powered Bitcoin mining facilities and is planning a Bitcoin City.
