El Salvador’s ‘limited’ use of Bitcoin prevents forecasted risks, says IMF

El Salvador’s ‘limited’ use of Bitcoin prevents forecasted risks, says IMF
  • The International Monetary Fund (IMF) visited El Salvador to assess the country’s adoption of Bitcoin as a legal tender.
  • The IMF warned of the risks associated with expanding government exposure to Bitcoin, due to its speculative nature and the potential impact on fiscal sustainability, consumer protection, and financial stability.
  • The IMF emphasized the need for greater transparency in the government’s transactions with Bitcoin and the financial situation of the state-owned Bitcoin wallet, Chivo.

El Salvador made headlines in September 2021 when it became the first country in the world to recognize Bitcoin as legal tender. The IMF’s recent visit to the Central American country was part of its annual “article IV” visit and followed a $600 million bond payment by El Salvador. The IMF noted that the risks associated with Bitcoin have not materialized in El Salvador due to the limited use of the cryptocurrency, but warned that its use could grow given its legal tender status.

The IMF highlighted the importance of addressing the risks of Bitcoin, including its impact on the country’s fiscal sustainability and consumer protection, as well as its financial integrity and stability. The IMF also urged the El Salvadoran authorities to reconsider their plans to expand government exposures to Bitcoin, including the issuance of tokenized bonds, due to the legal and financial risks associated with the crypto market.

In addition to the risks, the IMF also emphasized the need for greater transparency in the government’s Bitcoin transactions and the financial situation of the state-owned Bitcoin wallet, Chivo. The El Salvadoran government has not officially disclosed information about its purchases, holdings, or storage of Bitcoin, which raises concerns about the transparency of the country’s cryptocurrency operations.

The IMF’s visit to El Salvador comes after the recent establishment of a legal framework for a Bitcoin-backed bond in the country, known as the “Volcano bond“. The El Salvadoran government plans to use these bonds to pay down sovereign debt and fund the construction of its proposed “Bitcoin City,” which is part of the country’s plan to continue attracting crypto investors. The opening of the National Bitcoin Office in El Salvador is expected to address any possible cryptocurrency-related criminal activity, according to Guillermo Contreras, CEO of DitoBanx.

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ABOUT THE AUTHOR

Kristina Knight-1
Kristina Knight, Journalist , BA
Content Writer & Editor
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Kristina Knight is a freelance writer with more than 15 years of experience writing on varied topics. Kristina’s focus for the past 10 years has been the small business, online marketing, and banking sectors, however, she keeps things interesting by writing about her experiences as an adoptive mom, parenting, and education issues. Kristina’s work has appeared with BizReport.com, NBC News, Soaps.com, DisasterNewsNetwork, and many more publications.