IMF urges El Salvador to remove Bitcoin's status as legal tender

Members of the executive board at the International Monetary Fund are urging lawmakers in El Salvador to no longer recognize Bitcoin as legal tender.

The IMF reported on Tuesday that though digital payments had the potential to increase financial inclusion in the Central American nation, the use of Bitcoin (BTC) as legal tender carried “large risks” related to financial stability, financial integrity and consumer protection. The executive board directors urged El Salvador authorities to “narrow the scope of the Bitcoin law by removing Bitcoin’s legal tender status,” also expressing concern about the potential risks of issuing Bitcoin-backed bonds.

The officials’ recommendation came following the conclusion of an Article IV consultation in El Salvador. According to the IMF, during such a consultation, a team of economists visits a country “to assess economic and financial developments and discuss the country's economic and financial policies with government and central bank officials.”

Prior to the implementation of El Salvador’s Bitcoin Law in September 201, IMF officials warned that some of the consequences of a country adopting BTC as a national currency “could be dire,” including the risk of having domestic prices becoming highly unstable, and assets being used contrary to Anti-Money Laundering and Combating the Financing of Terrorism measures. The IMF has previously issued statements to small nations considering adopting crypto, claiming that to do so would “raise risks to macroeconomic and financial stability as well as financial integrity.”

Since the Bitcoin Law went into effect in September, El Salvador President Nayib Bukele has used his Twitter account to announce several BTC buys totaling 1,801 BTC — worth roughly $67 million at the time of publication. The latest purchase of 410 BTC came as the price of the crypto asset dropped below $37,000 for the first time since July 2021.

Nope, I was wrong, didn’t miss it.

El Salvador just bought 410 #bitcoin for only 15 million dollars

Some guys are selling really cheap ‍♂️ https://t.co/vEUEzp5UdU

— Nayib Bukele (@nayibbukele) January 21, 2022

Cointelegraph reported on Jan. 14 that El Salvador’s recognition of BTC as legal tender may be impacting the country’s sovereign credit outlook, according to Moody’s Investors Service. Analyst Jaime Reusche reportedly said that Bitcoin “certainly adds to the risk portfolio” of a country that has struggled with liquidity issues. 

According to data from Cointelegraph Markets Pro, the price of Bitcoin is $36,550 at the time of publication, having fallen more than 12% in the last seven days. The crypto asset briefly dipped to the $33,000s on Jan. 24 before returning to the $36,000s.