Not again, but again: the IMF warns El Salvador about the risks associated with bitcoin

The small but proud state of El Salvador has again attracted the attention of the International Monetary Fund. IMF specialists again recommended El Salvador to reconsider its plans for bitcoin after another visit to the country. The regulator advises caution when expanding the use of bitcoin in the country.

An International Monetary Fund statement released on Feb. 10 stressed that the risks associated with the first cryptocurrency for El Salvador “have not yet materialized” due to the “limited” use of bitcoin in the country.

However, these risks must be taken into account for the country’s financial soundness and consumer protection, as well as for its financial integrity and stability. The paper also highlights the importance of recognizing these risks, as the use of bitcoin in El Salvador “could grow” given that it was recognized as legal tender in the country in September 2021.

“Although [связанные с биткоином] risks did not materialize due to limited use [биткоина] – as survey and transaction data show – its use may grow <...>. In this context, major risks to financial integrity and stability, as well as consumer protection, remain.” according to the IMF.

El Salvador was urged to reconsider its decision to issue tokenized bonds as the IMF said it should be “avoided” due to its legal and financial risks: “Given legal risks, financial volatility and the largely speculative nature of crypto markets, the authorities should rethink their plans to expand state participation in [популяризации] bitcoin, including by issuing tokenized bonds.”

This is not the first time the IMF has scared El Salvador of the implications of digital gold. The regulator already appealed to the country’s authorities in January last year, when it recommended depriving bitcoin of the status of legal tender in the state.

The IMF acknowledged that digital currencies can help expand financial inclusion in the country, but the use of bitcoin must be stopped. The authorities of El Salvador should, according to the IMF, “narrow the scope of the bitcoin law, depriving it of the status of legal tender.” Dissatisfaction with the issuance of a bitcoin bond is also not new – a year ago, the IMF expressed concern in the same way about the potential risks of issuing bonds backed by bitcoins worth $ 1 billion.

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