Key Takeaways:
- The IMF said El Salvador should not use bitcoin as legal tender.
- IMF gave this statement in its staff concluding statement of the 2021 Article IV mission.
- The IMF statement came only two days after President Nayib Bukele announced El Salvador was planning to build the world’s first “bitcoin city”.
The International Monetary Fund (IMF) yesterday said El Salvador should not use bitcoin as legal tender, citing El Salvador’s recent decision to make the e-token legal tender as the country prepares to launch a cryptocurrency-funded “Bitcoin City.”.
The IMF said in its staff concluding statement of the 2021 Article IV mission to El Salvador that “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.” The global financial body urged for “strengthening the regulation and supervision of the new payment ecosystem.”
The IMF regularly undertakes Article IV missions to member countries to consult with government officials before they request to use IMF resources. IMF said that “Because of those risks, bitcoin should not be used as a legal tender. Staff recommends narrowing the scope of the bitcoin law and urges strengthening the regulation and supervision of the new payment ecosystem”.
In September, El Salvador passed legislation making bitcoin an official legal tender alongside the US dollar. He made it the first country in the world to do so. Since then, the government has backed Chivo. It is an e-wallet system that allows residents to make bitcoin payments and convert digital coins into US dollars.
The IMF statement came only two days after President Nayib Bukele announced El Salvador was planning to build the world’s first “bitcoin city”, which will be funded initially by bitcoin bonds. Bukele stated that the city would get its energy from a volcano and that it would not levy any taxes other than the VAT.
Bukele has pushed for the adoption of bitcoin, claiming that it will make it easier for millions of Salvadorans living abroad to send money home. It will also bring financial inclusion, investment, tourism, and development, according to him. Bukele replied to the IMF stated that “Although we obviously do not agree on some things, such as the adoption of #Bitcoin, the analysis it makes of our country is interesting”.
