IMF Warns El Salvador Of Bitcoin-Related Risks

Twitter icon   • 1 minute read  •  Published 1 week ago  •  Hassan Maishera

El Salvador remains the only country to have made Bitcoin a legal tender, but global financial institutions are against the move.

IMF Believes There Is A Risk To El Salvador's Bitcoin Adoption

El Salvador made history in September when it became the first country in the world to make Bitcoin a legal tender. The Central American country now uses both the U.S. Dollar and Bitcoin as the official means of payment.

However, despite El Salvador's optimism towards Bitcoin adoption, global financial institutions are against the move. The International Monetary Fund (IMF) made this known in a recent report about the country.

The IMF said, "Efforts to improve financial inclusion and raise growth are welcome, but risks arising from Bitcoin as a legal tender, the new payments ecosystem and trading in Bitcoin should be addressed"

The financial institution added that given Bitcoin's high price volatility, its use as a legal tender entails significant risks to consumer protection, financial integrity, and financial stability. Bitcoin's adoption also rises to fiscal contingent liabilities.

The IMF added that because of those risks, Bitcoin should not be used as a legal tender. "Staff recommends narrowing the scope of the Bitcoin law and urges strengthening the regulation and supervision of the new payment ecosystem. Like for other e-wallets, Chivo should be required to fully safeguard customers' funds, both in U.S. dollars and Bitcoin, by segregating and ring-fencing reserve assets," the report added.

The monetary organization is not sure that El Salvador will follow its advice and remove Bitcoin as a legal tender. Hence, it went on to recommend stronger regulation and oversight of the payment ecosystem to ensure consumer protection, anti-money laundering and counter financing of terrorism (AML/CFT), and risk management.

Bitcoin is a legal tender in El Salvador, and the government intends to expand its presence within the crypto space. The government is building a Bitcoin City and is also using part of its Bitcoin Fund to build 20 schools across the country.

Author

Hassan Maishera

Hassan is a Nigeria-based financial content creator that has invested in many different blockchain projects, including Bitcoin, Ether, Stellar Lumens, Cardano, VeChain and Solana. He currently works as a financial markets and cryptocurrency writer and has contributed to a large number of the leading FX, stock and cryptocurrency blogs in the world.

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