IMF warning El Salvador against using Bitcoin as a legal tender
/ Our Today
administratorFund cites threats to the country’s financial stability
In an Our Today follow-up, the International Monetary Fund (IMF) is today warning El Salvador against using Bitcoin as a legal tender, arguing that the move carries risks to the country’s financial system.
In a statement to the media, the IMF acknowledged that Bitcoin and cryptocurrencies at large can facilitate efficient payments, but declared that, as legal tender, they will potentially erode the South American state’s financial stability.
The IMF’s warning comes days after El Salvador President Nayib Bukele announced the country is planning to build the world’s first ‘Bitcoin City’, funded by Bitcoin bonds.
READ: El Salvador plans first ‘Bitcoin City’, backed by bitcoin bonds
Additionally, the IMF also raised a red flag with the Bitcoin bonds stating that they should undergo very careful analysis of implications and potential risks to the country’s financial stability.
IMF concern’s with Bitcoins
According to the IMF, “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 multinational funding agency called on El Salvador to narrow the scope of its Bitcoin law and strengthen the regulation and supervision of the new payment ecosystem. In September, El Salvador became the first country globally to declare Bitcoin a legal tender, a move that has been met with mixed reactions.
The government later rolled out an e-wallet system dubbed Chivo that allows residents to manage Bitcoin payments. Noting that the wallet is a major stride towards achieving financial inclusion, the IMF is insisting that the Chivo wallet needs to guarantee safety for consumers’ funds, both fiat and crypto-currencies.
As such, the IMF is recommending stronger regulation and oversight, including anti-money laundering and counter financing of terrorism and risk management.
Besides the IMF, other financial sector opinion leaders such as Professor of Applied Economics at Johns Hopkins University, Steve Hanke have warned against the country’s move to adopt Bitcoin.
Hanke warned that El Salvador’s decision to legalise Bitcoin would have consequences terming the move as economic stupidity.
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