In Brief
- The IMF published a statement about the economy of El Salvador.
- It reiterated supposed financial stability risks associated with Bitcoin’s legal tender status.
- This is not the first time the International body has criticised countries over their Bitcoin decisions.
The statement was made during an online discussion and covered a number of aspects about Bitcoin technology. It noted the economic developments, outlooks, and risks which were taking place in the South American nation. Among them was that the El Salvadorian economy grew at a steady rate last year, avoiding global trends.
Still, the international body believes that “Bitcoin’s risks should be addressed.” As it has done in previous statements and publications, the IMF thinks there are macro and microeconomic risks to Bitcoin’s status as legal tender. More specifically, the IMF is likely displeased that the small nation is not seeking predatory loans from the International body.
The statement reads:
“While risks have not materialized due to the limited Bitcoin use so far—as suggested by survey and remittances data—its use could grow given its legal tender status…underlying risks to financial integrity and stability, fiscal sustainability, and consumer protection persist…”
It also asks for greater transparency over the government’s Bitcoin transactions and the financial situation of the Chivo wallet. This is to assess underlying fiscal contingencies and counterparty risks.
El Salvador also recently passed a bill that would allow Bitcoin bonds. This too has been met with criticism from the IMF.
IMF has Criticised El Salvador for BTC adoption
El Salvador is no stranger to criticism. In fact, the country’s decision to adopt Bitcoin as legal tender has come under fire several times in the past. The International body has formally asked El Salvador to drop Bitcoin as the nation’s currency, but President Nayib Bukele hasn’t changed course.
The main concerns are macroeconomic, financial and legal issues. Since 2021, the IMF has repeatedly aired these criticisms expecting better reception. But their efforts haven fallen on deaf ears so far, and the IMF’s fears of eventual redundancy may be central to these ongoing concerns. The Central African Republic also made Bitcoin legal tender in early 2022, resulting in similar disapproval from the IMF.
The BTC experiment
El Salvador’s experiment with innovative monetary technology has been a journey of international recognition and rocky financials.
For instance, famous whistle-blower Edward Snowden said the country’s move to adopt and stack Bitcoin put pressure on other countries to compete.
El Salvador has benefited economically too, with the country’s tourism sector shooting up 30% since it made Bitcoin legal tender. While Bitcoin volatility has certainly not helped, the Finance Minister has said that the experiment is working, though others disagree.
Gauging Chivo wallet’s success is difficult, given the early stages. Moody’s believes there is enough cause for concern to damped the country’s credit outlook. The rating’s agency is currently developing a stablecoin scoring system, which it hopes to roll out soon due to their implications in the broader economy.
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