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The International Monetary Fund once again suggested that El Salvador stop accepting Bitcoin as legal tender, and once again, the Central American country politely declined.
Meanwhile, El Salvador’s President Nayib Bukele continues to promote the cryptocurrency as a means of improving its citizens’ standard of living and building a stronger economic base.
The IMF Report
On January 25, The International Monetary Fund announced the conclusion of its 2021 Article IV consultation with El Salvador. It reported that the country has enjoyed a decade of solid economic growth, interrupted only in 2020 by the COVID-19 pandemic.
However, the report also noted that its adoption of Bitcoin as legal tender “entails large risks for financial and market integrity, financial stability, and consumer protection.”
The IMF Executive Board conceded that widespread adoption of the Chivo e-wallet to manage Bitcoin payments could play an important role in increasing financial inclusion.
However, it also stressed “the need for strict regulation and oversight of the new ecosystem of Chivo and Bitcoin,” claiming that the use of the cryptocurrency presents significant risks to “financial stability, financial integrity, and consumer protection.”
The report concluded by urging the government to remove Bitcoin's status as legal tender. Some directors also expressed concerns about “risks associated with the country issuing Bitcoin-backed bonds.”
An estimated 70% of Salvadoran adults have no access to banking services, yet the country’s heavy reliance on foreign remittances makes them vulnerable to predatory financial practices and slow service.
As an IMF member since 1946, El Salvador conforms to its Article of Agreement, subjecting its economic and financial policies to the scrutiny of the international community, including regular comprehensive evaluations known as "Article IV consultations". Visiting IMF economists evaluate various economic conditions and then meet with government and central bank officials to discuss the country's economic and financial policies.
El Salvador declared Bitcoin legal tender on September 7, 2021 while continuing to use the U.S. dollar, its national currency since 2001. In November, a visiting IMF staff team warned of the risks of using Bitcoin as a substitute for the U.S. dollar.
President Bukele responded humorously on Twitter to the IMF report, posting a Simpsons-themed meme with the caption, “I see you, IMF. That’s very nice.”
Former US intelligence contractor and whistleblower Edward Snowden had rather stronger words for the IMF, tweeting to his 5 million followers, “Somebody sounds nervous”.
El Salvador is currently seeking a $1.3 billion IMF loan, but talks have reportedly stalled because of concerns over Bitcoin adoption.
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