“Given the high volatility of bitcoin prices, its use as legal tender involves significant risks to consumer protection, integrity and financial stability,” this was the warning made by a mission from the International Monetary Fund (IMF) after a visit to El Salvador, on November 22.
The Central American country has bitcoin as its legal tender and that has caused some discomfort to international organizations. In fact, this is not the first wake-up call made by the IMF, last June, it also released its stance against the Bitcoin Law, proposed by the Salvadoran president, Nayib Bukele.
On this occasion, the IMF indicated that bitcoin should not be used as legal tender because it gives rise to “contingent fiscal liabilities,” which can lead to large increases in public debt, the IMF explained in a document.
Similarly, the mission that visited El Salvador made a series of proposals, including recommending that the scope of the Bitcoin Law is reduced, as well as that greater regulations be established for the wallet for bitcoin Chivo Wallet and for other similar ones.
In that sense, they consider that Chivo Wallet should be required to fully safeguard customer funds, both in US dollars and in bitcoin, through the segregation and protection of reserve assets.
Additionally, the IMF suggests strengthening the regulation and supervision of its payment system to combat money laundering and terrorist financing (ALM).
Positive feedback from the IMF
The financial agency’s technical evaluation also highlighted positive aspects. Among those, they highlighted the management of the pandemic by the Government, highlighting the early detection measures, containing the virus in a timely and effective manner.
They recognized that the country reduced costs and diversified the energy matrix, promoted economic diversification and financial inclusion.
Likewise, they endorsed the expansionary economic policies and, for the first time, announced that the Salvadoran economy will grow 10% this year. Although they do not explain if that is due to the arrival of bitcoin in the country.
For his part, President Bukele reacted to the IMF report, via Twitter. “Although we obviously do not agree on some things, such as the adoption of bitcoin, the analysis they make of our country is interesting,” said the president.
Bitcoin City is not in the IMF report
The assessment made by the IMF, does not include your point of view on Bitcoin City, since it was made prior to Bukele’s announcement.
Bitcoin City is going to be the first ‘bitcoin city’ powered by geothermal energy and almost tax-free, as CriptoNoticias reported.
The city will be exempt from income, capital gains, property, contracting and municipal taxes. This is part of a strategy to attract private investment to the country on the part of the world’s bitcoiners, as they now have greater economic incentives to establish their businesses in El Salvador.