The IMF 'Urged' El Salvador to Abandon Bitcoin as Legal Tender

To 'narrow the scope' of Bitcoin law.
Brad Bergan
A physical Bitcoin (left), and the offices of the IMF (right).1, 2

The International Monetary Fund's board "urged" the nation of El Salvador to abandon bitcoin as legal tender, in addition to pushing for substantial regulation of the country's e-wallet, according to a statement in the wake of an annual consultation, in an initial Reuters report.

Board members of the IMF "urged the authorities to narrow the scope of the Bitcoin law by removing bitcoin's legal tender status," said the entity, in the statement.

Some of the IMF's board members also expressed concerns surrounding the risks potentially involved with El Salvador issuing bitcoin-linked bonds, according to the report. This comes on the heels of an earlier, November 2021 statement from the IMF, when it recommended against El Salvador using bitcoin as legal tender. "Given bitcoin's high price volatility, its use as a legal tender entails significant risks to consumer protection, financial integrity, and financial stability," wrote the IMF in its statement. This recommendation came at the end of an Article-IV mission to the nation, with the aim of consulting with El Salvador's government officials.

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In September of last year, the nation became the first in the world to officially adopt bitcoin as legal tender, next to the U.S. dollar. "Because of those risks, bitcoin should not be used as legal tender," continued the IMF statement. "Staff recommends narrowing the scope of bitcoin law and urges strengthening the regulation and supervision of the new payment ecosystem." The November statement came just two days after the nation's president, Nayib Bukele, said El Salvador would construct the first "bitcoin city", funded at first via bitcoin bonds. This city would receive its energy from a volcano, and levy zero taxes, excluding value-added tax, according to a previous Reuters report.

"Although we obviously do not agree on some things, such as the adoption of #Bitcoin, the analysis it makes of our country is interesting," remarked Bukele on the IMF statement, in the report. Regardless, an entire city built on the backs of cryptocurrency bonds might be exposed to unprecedented risks, should the cryptocurrency take a turn for the worse. And, days ago, Bitcoin's price plummeted below $39,000 — a six-month low for the cryptocurrency — spurring the central bank of Russia to propose a ban on the use and creation of any cryptocurrency, according to a Bloomberg report. You don't have to invest in crypto to understand the hesitancy and concern surrounding major investments in Bitcoin, but when entire nations become dependent on their value, even verbal warnings from authoritative entities from the IMF could put vast sums of wealth even closer to the brink.

This was a breaking story and was regularly updated as new information became available.

 

Disclaimer: Some members of the IE team, including editors of this article, have personally invested in a number of cryptocurrency and stock markets. However, their private investment viewpoints have no impact on editorial content.

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