IMF urges El Salvador to drop bitcoin as legal tender

[TL;DR]

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El Salvador has admitted bitcoin as an official currency, along with the US dollar, on September 7, 2021. This displeases the International Monetary Fund, which is urging the country to remove the virtual currency as a legal tender. The international organization believes that cryptocurrency poses an excessive risk to the economy of the Central American country.

The first country to adopt bitcoin as legal tender

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El Salvador is the only country in the world to adopt bitcoin as a legal currency. But that's not a good idea, according to the IMF, which is urging the country to back off.

The International Monetary Fund (IMF) is having a definite problem with El Salvador's choice to make bitcoin an official currency alongside the US dollar. In a statement issued on January 25 as part of the Executive Board's discussion of El Salvador's annual economic assessment, the international organization again called on the country to abandon the decision.

The volatility of bitcoin stirs up the distrust of the IMF

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For the IMF the adoption in September 2021 of bitcoin as an official currency, the only country in the world to have gone that far, is very worrying. The organization believes that "The adoption of a cryptocurrency as a legal tender carries great risks for the financial integrity of the market, financial stability and consumer protection."

This stance is not new, just as the World Bank refused to help El Salvador make bitcoin an official currency, the IMF has done everything it can to throw a wrench in the plans of the country's president, Nayib Bukele. A $1.3 billion loan request to the institution is reportedly stalled because of the cryptocurrency.

In November, the institution had pointed to bitcoin's high volatility as a reason for El Salvador to abandon the cryptocurrency. It must be said that current events have proven the institution right. El Salvador began acquiring bitcoin in 2021, around 1801 when it was worth $50,000. After peaking at nearly $70,000 in November, the price dropped 45 percent. According to Bloomberg's calculations, El Salvador has lost nearly $20 million.

That's all it takes to convince Nayib Bukele to give up. On Twitter, the 40-year-old president announced on January 21 that he had acquired 410 new bitcoins for $15 million, to take advantage of the drop in value. An operation described as "cheap" by Nayib Bukele, who linked the success of his policy to his decision to recognize bitcoin.

Some IMF directors also expressed "concern about the risks of issuing bitcoin-backed bonds." El Salvador plans to raise $1 billion in "bitcoin bonds" with the help of Blockstream, a digital asset company.

The IMF board also welcomed the potential impact of the Chivo wallet on financial inclusion. However, it adds that the country needs "strong regulation and oversight of the new Chivo and bitcoin ecosystem."

The IMF highlights the "large risks associated with the use of bitcoin on financial stability, financial integrity, and consumer protection, as well as the associated contingent fiscal liabilities" and called on El Salvador to "reduce the scope of the bitcoin law by removing bitcoin's legal tender status."

Nayib Bukele takes on the IMF

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The president mocked the IMF statement on Twitter with a Simpsons-themed meme containing the text, "I see you, IMF. That's awesome. Earlier, in response to the falling bitcoin price, he posted an image of himself in a McDonald's employee uniform, in an apparent nod to the joke that when the price of cryptocurrencies falls, traders need to find a "real job," like turning over burgers.

Author: Gate.io Researcher: Aziz. H
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