IMF Sounds Another Bitcoin Risk Warning to El Salvador
In a concluding statement published by the IMF on Monday (Nov. 22, 2021), after its official visit otherwise called mission in El Salvador, the international financial organization said that the adoption of Bitcoin as a legal tender by the country posed risk for consumers and threatened financial stability.
According to the IMF, Bitcoin’s volatile nature makes crypto not suitable for use as an official currency. An excerpt from the publication reads:
“Given Bitcoin’s high price volatility, its use as a legal tender entails significant risks to consumer protection, financial integrity, and financial stability. Its use also gives rise to fiscal contingent liabilities. Because of those risks, Bitcoin should not be used as a legal tender”.
El Salvador became the first country globally to make BTC a legal tender, making it the second official currency alongside the U.S. dollar. The Bitcoin Law, proposed by President Nayib Bukele, saw a supermajority vote in July.
Meanwhile, the recent comment by the IMF is similar to statements made in the early stages of El Salvador’s Bitcoin legalization. The international body said that the country’s decision raised legal and economic concerns. A spokesperson for the IMF, Gery Rice, said:
“Adoption of bitcoin as legal tender raises a number of macroeconomic, financial, and legal issues that require very careful analysis. We are following developments closely, and we’ll continue our consultations with the authorities”.
Despite the criticisms from the IMF, Bank for International Settlements (BIS), and even the opposition party in the country, the Bukele-led administration forged ahead with the Bitcoin Law, formally implementing it in September.
The El Salvador government also created a Chivo wallet, with persons receiving $30 dollars upon downloading the app. Speaking about the wallet, the IMF called for robust regulatory policies that would safeguard users’ funds, and also ensure the implementation of anti-money laundering and counter financing of terrorism (AML/CFT).
IMF Recommends The Closure of the $150 Million Bitcoin Trust
Part of the IMF concluding statement also recommended the shutdown of the Bitcoin Trust Fund. The El Salvador government earlier created a $150 million BTC Trust to facilitate the conversion of Bitcoin to USD.
“Measures to limit fiscal contingent liabilities, such as winding down the trust fund or withdrawing public subsidies toChivo, should also be promptly considered”.
Apart from legalizing the use of Bitcoin in the country, the El Salvador government has also been on a BTC buying spree. The Central American country bought its first Bitcoin early in September, and made four more purchases, bringing the total number of BTC accumulated so far to 1,120.
In October, President Bukele said that the profits from the bitcoin purchases will be used to build a pet hospital. The El Salvadoran President later revealed plans to also build the first 20 Bitcoin schools.
Recently, President Bukele said that the country was planning to build a Bitcoin City built at the base of a volcano and without taxes except for VAT.