The International Monetary Fund (IMF) has again criticized the decision of the Salvadoran authorities to recognize bitcoin as the official currency. In its review, the organization said the cryptocurrency should not be used as legal tender.
“Given the high volatility of bitcoin’s price, its use as legal tender entails risks for consumers and financial integrity and stability. Its use also gives rise to contingent fiscal liabilities,” the review said.
The criticism is presented as part of the organization’s preliminary conclusion following a staff visit to El Salvador as part of consultations under paragraph IV of the IMF Articles of Agreement. The institution stressed that the findings of the review “do not reflect the views of the Executive Board.”
The experts visiting El Salvador recommended that the country’s government “narrow the scope of the bitcoin law and strengthen regulation as well as oversight of the new payment system.”
“As with other electronic wallets, Chivo should be required to fully protect customer funds, both in U.S. dollars and bitcoin, through segregation and ring-fencing of reserve assets. Stricter regulation and oversight of the payment ecosystem should be implemented immediately to protect consumers, combat money laundering and terrorist financing, and manage risk,” they wrote.
The experts added that the authorities should consider measures to limit contingent fiscal obligations. Among the possible steps, they noted the elimination of government subsidies for Chivo and the closure of the state bitcoin trust.
In response to the IMF review, President Salvador Naib Bukele stressed that he disagreed with the organization on criticisms of the decision to legalize bitcoin.
The IMF estimates that El Salvador’s economy will grow 10% in 2021. The organization expects the country’s public debt to reach 85% of GDP by the end of the year.
The law recognizing bitcoin as El Salvador’s official currency entered into force on September 7, 2021.
Not everyone in the country was enthusiastic about the government’s decision. There was a large-scale protest in the capital, during which demonstrators burned one of the cryptocurrency ATMs.
The IMF has already warned about the risks of legalizing digital gold in the country. The organization pointed out that such measures require a thorough analysis and competent regulatory policy.
The rating agency S & P Global later noted that the actions of President Buquele have negative implications for the credit rating of the country and jeopardize the achievement of an agreement with the IMF. From the latter, El Salvador expects to receive $1 billion in financial aid.