The IMF stated that “many prospective risks related to Bitcoin have not yet materialized.”
The International Monetary Fund and El Salvador have come to preliminary agreements to mitigate risks from Bitcoin, enhance transparency and governance, strengthen the country’s financial reserve buffers, and improve the fiscal situation.
The international organization claimed in a statement dated August 6 that several potential risks associated with the cryptocurrency “have not yet materialized.” However, it acknowledged that El Salvador must improve transparency and reduce risks associated with the project.
This represents a significant departure from the IMF’s previous stance on Bitcoin in El Salvador. The IMF explicitly advised the country in late 2021 to “not use Bitcoin as legal tender” and instead restrict the scope of the new Bitcoin law, mere months after President Nayib Bukele legalized the cryptocurrency.
The IMF had consistently emphasized the importance of conducting a thorough and specialized analysis of Bitcoin in El Salvador, warning against the potential instability it could cause. This was the case until yesterday’s statement.
Despite the fact that the reason for this minor shift in El Salvador’s stance toward Bitcoin remains uncertain, it is a significant indicator that the IMF is now expanding its adoption of cryptocurrencies further.
Tobias Adrian, Director of the Monetary and Capital Markets Department of the IMF, wrote in February of this year about the “evolving landscape of crypto assets” and the fact that crypto markets do not presently pose a threat to financial stability in the majority of markets.
Bukele’s action hindered El Salvador’s 2022 application for a $1.3 billion IMF loan by raising concerns regarding the financial system’s purported risks associated with Bitcoin. Since that time, Bukele has kept to his commitment to contribute 1 BTC per day while the IMF gradually reverses its stance.
Despite the fact that no public information was available to examine the policies the IMF intends to implement, the terminology and supposed interest in developing a plan, despite Bitcoin’s legal status in the country, indicate a promising development.
The IMF will also assist in the enhancement of the nation’s primary balance to approximately 3.5% of the gross domestic product (GDP) over a three-year period, thereby improving El Salvador’s reserve buffers by reducing its dependence on domestic funding and transitioning to getting support from the IMF and other development banks, as stated in the Aug. 6 statement.
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