The International Monetary Fund has warned El Salvador not to use bitcoin as legal tender because of the many risks associated with cryptocurrency. This warning was issued one day after Nayib Bukele, Salvadoran President, announced plans to create a “bitcoin capital” powered by a volcano. It would be funded by bitcoin bonds.

IMF: El Salvador Shouldn’t Use Bitcoin As Legal Tender

The International Monetary Fund (IMF), warned El Salvador Monday not to use bitcoin as legal currency, citing the many risks associated with cryptocurrency.

El Salvador was the first country to accept bitcoin as legal currency , alongside the U.S. dollars it has been using for over two decades. In September, El Salvador’s bitcoin law was implemented. Furthermore, El Salvador has purchased 1,120 BTC, according to Salvadoran President Nayib Bukele.

The IMF frequently conducts Article IV missions to member nations to consult with officials before they request its resources. The IMF explained that El Salvador was a case in point. “The adoption and supervision of bitcoin service providers and the regulation of them were all discussed .”

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In its “Staff Concluding Statement of the 2021 Article IV Mission” for El Salvador, the IMF detailed:

Given bitcoin’s high price volatility, its use as a legal tender entails significant risks to consumer protection, financial integrity, and financial stability. There are also fiscal contingent liabilities that can be incurred by bitcoin’s use. These risks make bitcoin a bad legal tender.

The IMF recommended “narrowing” the bitcoin law’s scope and urged El Salvador “to strengthen regulation and supervision of new payment ecosystem .”

The recent statement from the IMF came one day after President Bukele announced a plan to build the world’s first bitcoin city powered by a volcano and financed by bitcoin bonds. He stated that there would be no taxes in the bitcoin capital, except for value-added taxes (VAT).

“The plans to issue sovereign bonds and use the proceeds to buy bitcoin and fund infrastructure plans announced on November 20, occurred after the technical work of the mission concluded, and were not discussed with the authorities,” the IMF clarified.

Commenting upon the IMF statement, Bukele stated:

Although we obviously do not agree on some things, such as the adoption of bitcoin, the analysis it makes of our country is interesting.

What do you think about the IMF advising El Salvador against using bitcoin as legal tender? Comment below.

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