The International Monetary Fund (IMF) has urged El Salvador to stop using Bitcoin as a legal tender. The South American country became the first country to make Bitcoin a legally acceptable form of payment in September last year. It allowed consumers to use the cryptocurrency to settle fees for goods and services, in addition to the US dollar.
However, many observers feared that the decision will further weaken the El Salvadorian economy, which has been struggling in recent months. The IMF has been very vocal against the decision.
El Salvador Asked To Revisit Its Bitcoin Law
The international body has now warned President Nayib Bukele of the economic risks the use of Bitcoin as a legal tender poses to the country. It has also threatened El Salvador that the decision will affect the country’s loan application with the body.
IMF’s Board of Directors has urged the El Salvadorian government to revisit the Bitcoin law and remove its status as a legal tender.
The fund recently had a bilateral discussion with El Salvador about its economy. It warned the government that there are high risks of financial stability the government is placing on the economy when they continue using Bitcoin as a legal tender. The IMF mentioned the fact that cryptocurrency is very volatile and cannot be trusted as a legal tender for any nation.
Also, the IMF mentioned that there are risks of consumer protection and financial integrity associated with the cryptocurrency’s use.
In addition, the board asked El Salvador to adjust the scope of the Bitcoin law and faulted the proposed issuance of Bitcoin-backed bonds by the Salvadorian authorities.
The IMF Also Faults Proposed $ 1 Billion Bitcoin Bond
Shortly after El Salvador started recognizing Bitcoin as a legal tender, President Bukele announced that the government plans to raise $1 billion through a Bitcoin bond. The bond will be launched in partnership with cryptocurrency firm, Blockstream.
But the IMF is strictly against the move and hopes to use El Salvador’s application of a $1.3 billion loan from the body to stop the move. The IMF has asked the government to instead consider strengthening the supervision and regulation of the newly established payments ecosystem.
The IMF has suggested that the continuous use of Chivo, a virtual wallet, could help in facilitating digital means of payments and boost financial inclusion. But the body noted that there is a need for strict regulation.