The International Monetary Fund (IMF) has warned El Salvador against using bitcoin as 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 volcano-fueled “bitcoin city” funded by bitcoin bonds.
IMF Says El Salvador Should Not Use Bitcoin As Legal Tender
The International Monetary Fund (IMF) warned El Salvador on Monday that the country should not use bitcoin as legal tender, citing various risks associated with cryptocurrency.
El Salvador is the first country in the world to adopt bitcoin as legal tender alongside the U.S. dollar it has used for two decades. The country’s Bitcoin law went into effect in September. In addition, El Salvador bought 1,120 BTC, according to Salvadoran President Nayib Bukele.
The IMF regularly carries out Article IV missions to member countries to consult with government officials before they request to use its resources. The IMF explained that for El Salvador, “the adoption of bitcoin as legal tender, regulation and supervision of bitcoin service providers and the Chivo electronic wallet were also discussed.”
In its “2021 Article IV Mission Staff Final Statement” for El Salvador, the IMF detailed:
Given the high price volatility of bitcoin, its use as legal tender carries significant risks for consumer protection, financial integrity, and financial stability. Its use also gives rise to possible tax liabilities. Because of these risks, bitcoin should not be used as legal tender.
The IMF then recommended to “reduce the scope of the bitcoin law” and urged El Salvador to strengthen “the regulation and supervision of the new payments ecosystem”.
The recent IMF statement came a day after President Bukele announced a plan to build the world’s first volcano-fueled bitcoin city funded by bitcoin bonds. He noted that there would be no taxes in the city of bitcoin, except for the value added tax (VAT).
“The plans to issue sovereign bonds and use the proceeds to buy bitcoin and fund infrastructure plans announced on November 20 came after the technical work of the mission was completed and were not discussed with the authorities, ”the IMF said.
Commenting on the IMF statement, Bukele said:
While we obviously disagree on some things, like the adoption of bitcoin, his analysis of our country is interesting.
What do you think about the IMF advising El Salvador against using bitcoin as legal tender? Let us know in the comments section below.
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