Deniz Kılınç / London, January 30 (HNA) – The International Monetary Fund (IMF) has urged El Salvador to remove Bitcoin’s legal status, warning it could impact the nation’s ability to receive a loan from the fund.
The government of the country adopted Bitcoin as legal tender in September 2021, with president Nayib Bukele’s decision prompting thousands of Salvodorans to take to the streets to protest at the time.
The IMF’s Executive Board said that the adoption of a cryptocurrency as legal tender entails large risks for financial and market integrity, financial stability, and consumer protection, as well as creating contingent liabilities.
The IMF’s Executive Directors 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, said in the IMF statement and added:
“However, they emphasized the need for strict regulation and oversight of the new ecosystem of Chivo and Bitcoin. They stressed that there are large risks associated with the use of Bitcoin on financial stability, financial integrity, and consumer protection, as well as the associated fiscal contingent liabilities.
“They 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 risks associated with issuing Bitcoin-backed bonds.”
El Salvador began buying Bitcoin last year and bought around 1,801 coins, value of which has fallen 45 percent from its peak in early November.
The IMF predicts that El Salvador’s economy is projected to grow around 3.2 percent in 2022, although public debt vulnerabilities have emerged. The fiscal deficit is projected at 5.75 percent of GDP in 2021 and about 5.0 percent of GDP in 2022.
“Under current policies, public debt is expected to rise to about 96 percent of GDP in 2026 on an unsustainable path,” read the IMF statement.