El Salvador should not use bitcoin as legal tender due to the financial and consumer risks it poses, the International Monetary Fund (IMF) staff wrote in a concluding statement related to a mission in the Central American country. El Salvador had become the first country in the world to adopt bitcoin as an optional legal tender.
IMF asks El Salvador to address risks related to bitcoin.
“Given Bitcoin’s high price volatility, its use as a legal tender entails significant risks to consumer protection, financial integrity, and financial stability,” the November 22 IMF communication noted. “Its use also gives rise to fiscal contingent liabilities. Because of those risks, bitcoin should not be used as a legal tender.” IMF staff say that while it welcomes financial inclusion and growth efforts, El Salvador should address risks related to using bitcoin as legal tender, its “new payments ecosystem,” and bitcoin trading. The Central American country made Bitcoin legal tender alongside the U.S. dollar on September 7.
The IMF made several recommendations for El Salvador in the statement.
The IMF made several recommendations for El Salvador in the statement, including narrowing the scope of the bitcoin law. It also suggests bolstering regulation and oversight of its payment system in order to protect consumers, safeguard against money laundering and terrorism financing (AML/CFT) and manage risk. “Like for other e-wallets, Chivo should be required to fully safeguard customers’ funds, both in U.S. dollars and Bitcoin, by segregating and ring-fencing reserve assets,” the IMF statement says. It did acknowledge that “crypto-technologies” and digital systems can help make payments more efficient.