The International Monetary Fund (IMF) has warned El Salvador against using bitcoin as a legal tender due to various risks associated with cryptocurrency. The warning came a day after Salvadoran President Nayib Bukele announced his plan to build a “bitcoin city” run by a volcano and financed by bitcoin bonds.
The IMF says El Salvador should not use Bitcoin as a legal tender
The International Monetary Fund (IMF) warned El Salvador on Monday that the country should not use bitcoin as a legal tender, citing various risks associated with the cryptocurrency.
El Salvador is the first country in the world to use bitcoin as a legal tender, along with the US dollar, which it has used for two decades. The country̵[ads1]7;s bitcoin law came into force in September. El Salvador has also bought 1120 BTC, according to Salvadoran President Nayib Bukele.
The IMF regularly undertakes Article IV missions to member countries to consult with government officials before requesting the use of resources. The IMF explained that for El Salvador, “The adoption of bitcoin as a legal tender, the regulation and supervision of bitcoin service providers and the Chivo e-wallet were also discussed.”
In its “Staff Statement of Conclusion on the 2021 Article IV Mission” for El Salvador, the IMF detailed:
Given Bitcoin’s high price volatility, its use as a legal tender involves significant risk to consumer protection, financial integrity and financial stability. The use also gives rise to contingent liabilities for tax purposes. Because of these risks, bitcoin should not be used as a legal tender.
The IMF went on to recommend “limiting the scope of the bitcoin law” and urged El Salvador to strengthen “regulation and supervision of the new payment ecosystem”.
The recent statement from the IMF came a day after President Bukele announced a plan to build the world’s first bitcoin city run by a volcano and financed by bitcoin bonds. He noted that there would be no taxes in the bitcoin city other than VAT.
“The plans to issue government bonds and use the proceeds to buy bitcoin and finance infrastructure plans announced on November 20, took place after the technical work on the mission was completed, and were not discussed with the authorities,” the IMF clarified.
Commenting on the IMF statement, Bukele said:
Although we obviously do not agree on some things, such as the adoption of bitcoin, the analysis it makes of our country is interesting.
What do you think about the IMF advising El Salvador not to use bitcoin as a legal tender? Let us know in the comments section below.
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