The International Monetary Fund’s executive board has recommended El Salvador no longer use Bitcoin as a legal tender, citing potential risks to financial stability and consumer protection. The country’s use of Bitcoin could make it difficult for it to get a loan from the IMF, according to Bloomberg.
The recommendation comes as part of the organization’s consultation, where staff members visit a country and prepare a report that’s discussed by the IMF’s executive board. The summary from the board looks at and discusses El Salvador’s economic policies as a whole, but the country’s 2021 adoption of Bitcoin as a legal tender got a lot of attention.
The IMF’s board agrees with its staff’s recommendations from November that the country change its law because of the “large risks associated with the use of Bitcoin on financial stability, financial integrity, and consumer protection, as well as the associated fiscal contingent liabilities.” Some board members “also expressed concern over the risks associated with issuing Bitcoin-backed bonds,” according to the IMF. Amid its concerns, it did commend one of the government’s stated goals of using Bitcoin and its Chivo wallets and ATMs to make financial services available to more Salvadorans.
The IMF wants El Salvador to “narrow the scope of the Bitcoin law”
El Salvador adopted Bitcoin as a legal tender in September 2021, after passing its Bitcoin law in June the same year. The law does a variety of things in addition to establishing Bitcoin as a legal tender alongside the US dollar — for example, it means that citizens can pay their taxes in Bitcoin and that shopkeepers can display prices in Bitcoin. The IMF isn’t recommending that the law be done away with completely, just that El Salvador should narrow its scope so that it’s not a legal tender anymore.
El Salvador’s president, Nayib Bukele, is a strong proponent of Bitcoin — he announced the country’s Bitcoin law at a conference in Miami for the cryptocurrency and frequently tweets about investing in Bitcoin (sometimes somewhat caustically). The country’s coffers include over 1,500 Bitcoin, according to calculations based on Bukele’s public statements. The president has also proposed the idea of creating a $1 billion Bitcoin bond that investors can buy a stake in.