IMF urges El Salvador to remove Bitcoin’s status as legal tender

IMF urges El Salvador to remove Bitcoin's status as legal tender

The International Monetary Fund’s executive board is urging El Salvadoran lawmakers to stop accepting Bitcoin as legal tender.

On Tuesday, the IMF reported that while digital payments have the potential to increase financial inclusion in Central America, the use Bitcoin (BTC), as legal tender, carries “large risks” regarding financial stability, financial integrity, and consumer protection. Directors of the executive board urged El Salvador authorities “to narrow the scope of Bitcoin law by removing Bitcoin’s legal tender status,” and expressed concern about the possible risks associated with issuing Bitcoin-backed bonds.

Following the conclusion of an Article IV Consultation in El Salvador, officials made their recommendation. According to the IMF, such consultations involve a team economic experts visiting a country to “assess economic and fiscal developments” and discussing the country’s financial policies with central bank and government officials.

Before El Salvador’s Bitcoin Law was implemented in September 201 officials from the IMF warned that there could be serious consequences to a country adopting BTC for its national currency. These include the possibility of high domestic prices and assets being misused against Anti-Money Laundering or Combating the Financing Terrorism laws. IMF previously made statements to small countries considering crypto adoption, warning that it would pose risks to financial integrity and macroeconomic stability.

El Salvador President Nayib Bukele, who was elected in September by the Bitcoin Law, has announced several BTC purchases via Twitter. The total amount of 1,801 BTC bought is approximately $67 million. As the crypto asset’s price dropped below $37,000, the latest purchase of 410 BTC was made. This is the first time it has been lower than that since July 2021.

It was not what I expected, and I didn’t notice it. El Salvador just bought 410 #bitcoin for only 15 million dollars Some guys are selling really cheap https://t.co/vEUEzp5UdU
— Nayib Buukele (@nayibbukele), January 21, 2022

Cointelegraph reported Jan. 14 that El Salvador’s acceptance of Bitcoin as legal tender could have an impact on the country’s sovereign debt outlook, according Moody’s Investors Service. Jaime Reusche, an analyst, stated that Bitcoin “certainly increases the risk portfolio” for a country struggling with liquidity issues.

Data from Cointelegraph Markets Pro shows that the Bitcoin price is at $36,550 as of the publication. It has fallen more than 12 percent in the past seven days. The price of the crypto asset dropped briefly to $33,000 on Jan. 24, before rebounding to $36,000.

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