Because of the risks involved with bitcoin, the International Monetary Fund has cautioned El Salvador to not use it as legal tender. The warning came one day after Salvadoran President Nayib Bukele announced his plan to build a “bitcoin city” powered by a volcano and financed by bitcoin bonds.
IMF Says El Salvador Shouldn’t Use Bitcoin as Legal Tender
El Salvador was warned Monday by the International Monetary Fund that it should not accept bitcoin as legal currency. This is due to the many risks involved with this cryptocurrency.
El Salvador became the first nation to accept bitcoin as legal currency alongside the U.S. dollars it used for over two decades. The country’s bitcoin law went into effect in September. According to Nayib Bukele, Salvadoran President, El Salvador also purchased 1,120 bitcoins.
Article IV missions are conducted by the IMF to meet with officials in member countries before they ask for its assistance. The IMF explained that for El Salvador, “The adoption of bitcoin as legal tender, the regulation and supervision of bitcoin services providers, and e-wallet Chivo were also discussed.”
In its “Staff Concluding Statement of the 2021 Article IV Mission” for El Salvador, the IMF detailed:
Given bitcoin’s high price volatility, its use as a legal tender entails significant risks to consumer protection, financial integrity, and financial stability. There are also fiscal contingent liabilities that can be incurred by bitcoin’s use. These risks are why bitcoin shouldn’t be considered a legal tender.
The IMF proceeded to recommend “narrowing the scope of the bitcoin law” and urged El Salvador to strengthen “the regulation and supervision of the new payment ecosystem.”
The recent statement from the IMF came one day after President Bukele announced a plan to build the world’s first bitcoin city powered by a volcano and financed by bitcoin bonds. The bitcoin city would be free of any tax, except value-added (VAT), he stated.
“The plans to issue sovereign bonds and use the proceeds to buy bitcoin and fund infrastructure plans announced on November 20, occurred after the technical work of the mission concluded, and were not discussed with the authorities,” the IMF clarified.
Commenting on the IMF’s statement, Bukele said:
While we may not all agree on certain things such as bitcoin adoption, it is fascinating to see how the country’s analysis compares.
Let us know your thoughts on the IMF’s recommendation to El Salvador not to use bitcoin as legal currency. Please comment below.
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