El Salvador became a world laboratory for cryptocurrencies in early September with the adoption of bitcoin as legal tender.
The International Monetary Fund (IMF) urged El Salvador on Tuesday to “eliminate the quality of legal tender” of bitcoin and expressed its “concern” about the issuance of bonds backed by cryptocurrency.
The IMF reported today in a statement that the agency’s executive board concluded on January 24 the consultation on Article IV with El Salvador, in which the approach to the pandemic and the implementation of bitcoin as a payment method were analyzed.
El Salvador became a world laboratory for cryptocurrencies in early September with the adoption of bitcoin as legal tender.
In this regard, the IMF said today that “the adoption of a cryptocurrency as legal tender implies serious risks for the financial and market integrity, financial stability and consumer protection and may give rise to contingent tax liabilities.
Therefore, he urged the authorities to “limit the scope of the Bitcoin law by eliminating its status as legal tender”, further expressed concern about “the risks associated with the issuance of bonds backed by bitcoin”.
El Salvador plans to issue bitcoin bonds between February and March of this year, as recently revealed by the Minister of Finance, Alejandro Zelaya, who hopes that said “strategy will be successful.”
President Nayib Bukele announced, on November 21 of last year, the project called “Bitcoin City”, initially financed with bonds of said cryptocurrency, for which the Government will issue bitcoin bonds for 1,000 million dollars.
The IMF pointed out the importance of promoting financial inclusion and recognized that digital means of payment, such as the Chivo electronic wallet, can play a role; but nevertheless, emphasized the need to strengthen the regulation and supervision of this new ecosystem and of bitcoin.
According to a publication by El Faro, the Chivo wallet belongs to a private company created 22 years ago by the autonomous Hydroelectric Executive Commission of the Lempa River (CEL), which changed its name to Chivo SA de CV on August 24, 2021. and that it had an initial investment of 60 million dollars.
Public debt has worsened with the pandemic
The IMF executive board warned, on the other hand, that “fiscal vulnerabilities -derived from the high ratio between public debt and GDP- have worsened during the pandemic and require immediate action.”
He stressed that “the large and growing financing needs are limiting growth in the medium term and highlighted the need to implement structural fiscal reforms.”
Directors also stressed the “importance of other structural reforms to foster inclusive growth and supported efforts to reduce crime, red tape and energy costs, and for promoting investment in infrastructure and social spending, including in health and education”, he indicated.
“The pandemic interrupted ten years of growth, but El Salvador is recovering quickly. Strong external demand, resilient remittances, and strong management of the pandemic – aided by a disbursement under the Rapid Financing Instrument approved in April 2020 – are supporting a rapid recovery,” the IMF board added. (I)
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