El Salvador’s ‘limited’ use of Bitcoin prevents forecasted risks, suggests IMF

Published at: Feb. 12, 2023

El Salvador has been advised to exercise caution in expanding government exposure to Bitcoin (BTC) due to the “speculative nature” of crypto markets by the global monetary watchdog.

A Feb. 10 statement from the International Monetary Fund (IMF) emphasized that Bitcoin’s risks in El Salvador have “not materialized” yet due to its “limited” use so far, after IMF staff visited the country last week.

It was suggested that El Salvador address these risks as Bitcoin’s use “could grow” given it has been recognised as legal tender in the country since Sept. 2021.

El Salvador was warned to re-evaluate its plan to increase government exposure to Bitcoin due to both legal and financial dangers. The statemen noted:

“Given the legal risks, fiscal fragility and largely speculative nature of crypto markets, the authorities should reconsider their plans to expand government exposures to Bitcoin.”

The IMF emphasized the importance of “greater transparency” regarding both the El Salvadoran government’s Bitcoin transactions and the “financial situation” of the government’s state-owned Bitcoin wallet, the Chivo wallet.

Related: El Salvador's Bitcoin decision: Tracking adoption a year later

El Salvador was also recommended to rethink its decision to issue tokenized bonds, as IMF stated the idea should be “eschewed” due to its risk to financial integrity and consumer protection.

This comes after recent news that a legal framework for a Bitcoin-backed bond in El Salvador, known as the “Volcano bond,” was established on Jan. 11.

The El Salvadoran government said that these bonds will be used to pay down sovereign debt and fund the construction of its proposed “Bitcoin City.”

Bitcoin City is part of El Salvador's plan to continue attracting crypto investors, with it previously being noted that a priority for the country in 2023 is to address any possible cryptocurrency-related criminal activity.

Guillermo Contreras, CEO of DitoBanx previously told Cointelegraph on Jan. 6 that the opening of the National Bitcoin Office in El Salvador will function as “a central entity” to deal with these issues.

Tags
Adoption
Bitcoin
Regulation
Law
Bitcoin Wallet
El Salvador
Imf
Economy
Related Posts
IMF issues veiled warning against El Salvador’s Bitcoin Law
The International Monetary Fund is warning that some of the consequences of a country adopting Bitcoin as a national currency “could be dire.” According to IMF marketing department financial counsellor and director Tobias Adrian and legal department general counsel and director Rhoda Weeks-Brown, a cryptocurrency like Bitcoin (BTC) may catch on in countries without stable inflation and exchange rates and provide unbanked people with the means to make payments. However, the cost to an economy could be significant. The two IMF officials alleged that countries adopting cryptocurrencies as national currencies or “granting cryptoassets legal tender status” risked domestic prices becoming …
Bitcoin / July 26, 2021
Volcanos, Bitcoin and remittances: A Tongan lord plans for financial security
A former member of the Tongan Parliament is behind a proposal to make Bitcoin (BTC) legal tender in the tiny Pacific nation of Tonga, following in the footsteps of El Salvador. It’s due for a vote in Parliament in May and the early signs are encouraging. Mataʻiʻulua ʻi Fonuamotu, Lord Fusitu’a told Cointelegraph that plans are in motion to use state-run volcano mining facilities to create wealth in Tonga. Tonga has 21 volcanoes. “That means one volcano for every 5,000 people.” He owns one volcano himself through his family’s hereditary land rights. The proposed Bitcoin mining operations would use the …
Adoption / Jan. 14, 2022
IMF urges El Salvador to remove Bitcoin's status as legal tender
Members of the executive board at the International Monetary Fund are urging lawmakers in El Salvador to no longer recognize Bitcoin as legal tender. The IMF reported on Tuesday that though digital payments had the potential to increase financial inclusion in the Central America nation, the use of Bitcoin (BTC) as legal tender carried “large risks” related to financial stability, financial integrity, and consumer protection. The executive board directors urged El Salvador authorities to “narrow the scope of the Bitcoin law by removing Bitcoin’s legal tender status,” also expressing concern about the potential risks of issuing Bitcoin-backed bonds. The officials’ …
Bitcoin / Jan. 25, 2022
Pro-Bitcoin president of El Salvador to offer citizenship for foreign investors
El Salvador President Nayib Bukele wants to offer citizenship to those who invest in the small Central American nation. President Bukele took to Twitter to inform the crypto community on Sunday that he was sending a list of 52 legal reforms to Congress. Among the most notable proposals, Bukele called for the removal of red tape, reducing bureaucracy, creating tax incentives and most importantly offering citizenships to foreigners looking to invest in the nation. I’m sending 52 legal reforms to congress, to remove red tape, reduce bureaucracy, create tax incentives, citizenship in exchange for investments, new securities laws, stability contracts, …
Adoption / Feb. 21, 2022
Bitcoin, Bukele and a bevy of central bankers meet in El Salvador
This week, 44 central bankers from developing countries around the world are attending a conference in El Salvador to discuss financial inclusion, financing for small and medium-sized businesses and Bitcoin (BTC). Central bank delegates from Ghana to Burundi, Jordan to the Maldives and Pakistan to Costa Rica arrived in San Salvador for the conference upon El SalvadorPresident Nayib Bukele’s invitation. Organized by the Alliance for Financial Inclusion, a global policy leadership alliance, and in partnership with El Salvador’s central bank, the conference will run for three days. In a tweet, the head of El Salvador central bank, Douglas Rodríguez, shared: …
Adoption / May 17, 2022