The International Monetary Fund on Tuesday urged the government of The Savior to eliminate Bitcoin as legal tender after alleging that it involves “serious risks to financial and market integrity”, although it did not detail what they would be.
The Executive Board of the IMF issued a statement saying that consumer protection is also at risk with the adoption of Bitcoin as legal tender. The Board of Directors underlined the need to strengthen the regulation and supervision of the “new ecosystem of goat and bitcoin”.
“Some directors also raised concerns about the risks associated with issuing Bitcoin-backed bonds,” the statement said, without elaborating further.
El Salvador was the first nation in the world to adopt Bitcoin as legal currency. In September, businesses began accepting payments in cryptocurrency, except those that lacked the technology to do so, according to a law approved by the legislative Assembly controlled by the ruling New Ideas party.
Although the IMF did not offer details on the risks of Bitcoin, Manuel Orozco, director of Migration, Remittances and Development of the Inter-American Dialogue organization, said that the main risk is that the country’s fiscal deficit increases. He added that the Salvadoran government put into circulation an initial amount of Bitcoin with state money, but so far consumers have not used the currency much.
“The financial system has not been coupled, it has not been able to be coupled to Bitcoin because there is no demand for the currency,” he opined. “So, that has a financial risk because it increases the cost of part of the fiscal spending and does not generate transactions in the local economy.”
The Legislative Assembly of El Salvador approved a $150 million trust fund to guarantee implementation.
Orozco also said that the lack of regulation of the cryptocurrency is another risk. Third, he pointed out, if there is no demand for Bitcoin, the consumer will be left unprotected. “The starting point of all this is that all currency, whether virtual or physical, has weight according to the economic support that a country has and the Salvadoran economy is quite weak,” said the expert.
One of the most fervent defenders of cryptocurrency is the country’s president, Nayib Bukele, who has said that Bitcoin will bring inclusion. financial, investment, tourism, innovation and economic development to El Salvador. “Let no one tell us that we are too small to be big,” he said. Among the arguments in favor of cryptocurrency, the Ministry of Economy ensures that 70% of the population does not have access to traditional financial services.
Furthermore, in order to promote the economic growth of the country “it is necessary to authorize the circulation of a digital currency whose value obeys exclusively free market criteria” to increase wealth, the Salvadoran government has said.
The Salvadoran government did not immediately react to the IMF recommendation.
