The International Monetary Fund (IMF) staff noted in a concluding statement connected to a mission in El Salvador that bitcoin should not be used as legal money because of the financial and consumer dangers it poses.
“Because of Bitcoin’s extreme price volatility, its use as legal money poses considerable concerns to consumer protection, financial integrity, and financial stability,” according to an IMF letter released on November 22. “It also creates fiscal contingent liabilities as a result of its use. Bitcoin should not be utilized as a legal tender because of these hazards.”
While the IMF applauds El Salvador’s efforts to increase financial inclusion and prosperity, it says the country should address risks associated with utilizing bitcoin as legal cash, its “new payments environment,” and bitcoin trading. On September 7, the country made Bitcoin legal money alongside the US dollar.
In the statement, the IMF makes many recommendations for El Salvador, including limiting the scope of the bitcoin law. In order to protect consumers, prevent money laundering and terrorism financing (AML/CFT), and manage risk, it also recommends strengthening regulation and control of its payment system.
“Chivo, like other e-wallets, should be obliged to completely protect clients’ savings, both in US dollars and Bitcoin, by segregating and ring-fencing reserve assets,” according to the IMF statement. It did concede, however, that “crypto-technologies” and digital systems can aid in the efficiency of payments.
El Salvador should also consider dissolving the $150 million trust fund government uses to enable Bitcoin to US currency conversions, according to the IMF.
“Measures to limit fiscal contingent liabilities, such as winding down the trust fund or reducing public subsidies to Chivo,” the IMF advises. Furthermore, it claims that the country’s financial legislation should incorporate safeguards against bitcoin risk.
President of El Salvador, Nayib Bukele, responded to the message on Twitter shortly after it was released.
Bukele commented in Spanish, “The IMF today published its technical evaluation of El Salvador for the year 2021.” “And, while we definitely disagree on some points, such as Bitcoin acceptance, their view of our country is fascinating.” He then sent out a series of communications with highlighted paragraphs highlighting to the statement’s more positive aspects.
According to Bloomberg, the IMF and El Salvador have been in talks about a $1.3 billion loan accord. The early conclusions of personnel after completing an official mission to a country are included in these closing comments.
President Bukele’s recent declaration that El Salvador would issue so-called bitcoin bonds, which was made after the mission concluded, was not evaluated by the IMF.
Also Read: The Commonwealth Bank Of Australia Understands The Dangers Of Losing Out On Cryptocurrency
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