Coins and banknotes reproducing the bitcoin logo (AFP/Archives/Ozan KOSE)
The International Monetary Fund (IMF) on Tuesday urged El Salvador to withdraw bitcoin as an official currency, saying there were “significant risks associated with its use for financial stability, financial integrity and consumer protection.”
The board of directors urges “the authorities to reduce the scope of the bitcoin law by removing the legal status of bitcoin”, explains the institution in a press release.
“Some directors also expressed concern about the risks associated with issuing bitcoin-backed bonds,” the text adds.
On September 7, bitcoin, the first decentralized cryptocurrency, became legal tender in El Salvador, nearly thirteen years after its creation, along with the US dollar. The latter had itself replaced the national currency twenty years ago.
But as early as November, the Fund warned against using bitcoin, given its high volatility.
The IMF made this recommendation on the occasion of the publication of the annual report on the economic situation of El Salvador.
He recalls that the pandemic interrupted ten years of growth, “but El Salvador is rebounding quickly” thanks to “robust” external demand, “resilient” remittances and “good management of the pandemic”.
The Salvadoran economy had contracted by 7.9% in 2020, before growing by around 10% in 2021. The IMF expects growth of 3.2% this year.
But “public debt vulnerabilities have emerged”, continues the Fund. “Persistent budget deficits and high debt service lead to large and growing financing needs,” he notes.
It is in this context that bitcoin was adopted.
However, this “carries great risks for financial and market integrity, financial stability and consumer protection”, details the Fund. “It can also create contingent liabilities,” he notes.
© 2022 AFP
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