Wednesday, May 18

IMF asks El’Salvador to stop using bitcoin as legal tender

THE International Monetary Fund (IMF), “asked” that El Salvador “change course” e stop using Bitcoin as legal tender, citing “big risks” represented by cryptocurrency.

The organization advised the country’s authorities to restrict the scope of the you Bitcoin, removing Bitcoin’s legal tender status, according to a release of the International Monetary Fund published this Tuesday(25).

IMF executive directors, who represent the fund’s 190 member countries, spoke about “Bitcoin risks” for the “financial stability and consumer protection.” The IMF also expressed concern about the risks associated with issuing Bitcoin-backed securities.

The adoption of a cryptocurrency as legal tender, says the IMF, entails “major risks to financial and market integrity, financial stability and consumer protection.”

El Salvador and Bitcoin

In September 2021, El Salvador became the first country in the world to adopt bitcoin as a legal tender, making the cryptocurrency a legal tender for use in all transactions along with the US dollar.

In November, the President of El Salvador, Nayib Bukele, announced plans to create Bitcoin City, a city built from scratch, whose economy will be centered on bitcoin mining and will be powered by a volcano.

The IMF did not like the country’s action, and adopted a rigid stance, criticizing bitcoin as legal tender.

Despite being intended to support democracy and free markets, reforms mandated by the IMF in exchange for its loans have historically included serious cuts in social spending and industrial policy.

El Salvador, a low-income, high-debt country, is in talks with the IMF for one of its $1.3 billion loans. One hurdle has been the country’s recent adoption of bitcoin as a legal tender. The IMF signaled that it was not very happy with this idea.

In November, the organization warned El Salvador over its use of bitcoin, citing risks associated with the cryptocurrency, a day after the country announced plans to create the “Bitcoin City.”

“Given Bitcoin’s high price volatility, its use as legal tender carries significant risks to consumer protection, financial integrity and financial stability”, the IMF said in a statement.

The IMF added: “Because of these risks, Bitcoin should not be used as legal tender.”