BREAKING: IMF Urges El Salvador to Remove Bitcoin as Legal Tender

The International Monetary Fund (IMF) has urged the government of El Salvador to narrow the scope of the newly established Bitcoin Law and remove bitcoin as a legal tender.

In a press release published today, the IMF noted that while El Salvador has taken measures to mitigate the effects of the COVID-19 pandemic, its decision to adopt bitcoin as legal tender might destabilize the nation’s economic sector.

It said,

“The adoption of a cryptocurrency as legal tender, however, entails large risks for financial and market integrity, financial stability, and consumer protection. It also can create contingent liabilities.”

The financial institution also pointed out that although digital payment methods, like the Chivo wallet, helps to boost financial inclusion, they are often associated with large risks.

However, the IMF stressed the need for stringent regulations and supervision of the Chivo wallet ecosystem and the use of bitcoin for transactions.

According to the IMF, removing bitcoin’s status as legal tender would go a long way to help El Salvador to limit the risks digital assets pose on its national economy.

Some directors of the IMF also expressed concerns over the risks associated with the bitcoin-backed bonds that the country plans to issue later this year.

The IMF further urged the Salvadoran government to strengthen the anti-corruption, anti-money laundering (AML), and counter-terrorist financing (CFT) frameworks in line with international standards. 

El Salvador’s Bitcoin Adoption Stirs Up Controversies

The Central American nation had made headlines when its president, Nayib Bukele, announced that it had adopted bitcoin as a parallel legal tender to the USD, making it the first country to take such a bold step.

According to President Bukele, the decision to adopt bitcoin as legal tender was a “forward-thinking” one and has brought “freedom from fiat” for El Salvador.

However, not everyone shared the sentiment as Steve Hanke, a top professor of Applied Economics at the John Hopkins University, criticized the decision and said that it was “very stupid.”

Several analysts at JP Morgan pointed out that El Salvador stands to derive very little economic benefit from adopting bitcoin as legal tender as it could jeopardize the country’s relationship with the IMF.

Nevertheless, El Salvador continues to stand by its decision, adding more of the digital assets, and creating a crypto-friendly environment for bitcoin enthusiasts.

However, with the latest suggestion by the IMF, will El Salvador remove bitcoin from its legal tender status? We just have to wait and see.