IMF warns El Salvador to backtrack on Bitcoin
El Salvador’s adoption of Bitcoin as its legal currency was meant to be a sign that the crypto future was imminent. Now, however, the International Monetary Fund (IMF) is asking the country to reconsider.
El Salvador holds more than 1,500 BTC. The recent and well-publicised crash of the crypto market has sent shockwaves through the nation’s economy. As it attempts to negotiate with the IMF for a $US1.3 billion loan, the global body has identified the nation’s reliance on crypto as a serious risk.
The IMF has also recommended El Salvador significantly strengthen its regulation of the new crypto payment ecosystem. It “urges the authorities to narrow the scope of the Bitcoin Law by removing Bitcoin’s legal tender status,” according to a recent report. “Some directors also expressed concern over the risks associated with issuing Bitcoin-backed bonds.”
The IMF’s thee concerns with Bitcoin
The identified risks of Bitcoin as a national currency are three-fold. Firstly, it could impact on national financial stability, especially if the currency crashes. El Salvador’s own president, Nayib Bukele, seemed to acknowledge this concern when he personally played into the “you’ll need to get a job at McDonald’s now” meme following the recent crash. The IMF is also concerned with the integrity of the financial system, with crypto having ongoing money laundering issues. Finally, there is the concern for consumer protections, with crypto being susceptible to hacks and scams.
Despite the IMF’s concerns and the recent setbacks, El Salvador shows no indication on wavering from its current course. President Bukele remains vocally in support of the currency. Indeed, despite the crash, crypto does continue to provide El Salvador with what drove it to adopt the currency in the first place: independence from the American dollar.
Furthermore, the adoption of crypto was seen as a way of assisting citizens’ access to financial services. El Salvador has one of the highest percentages of unbanked in the world, at around 70 per cent. Being able to pay taxes and buy goods & services in Bitcoin is a solution to this challenge.