- The IMF is urging El Salvador to drop Bitcoin as its legal tender.
- El Salvador was the world’s first country to adopt Bitcoin in Sept. 2021.
- The country launched a national virtual wallet.
The executive board of the International Monetary Fund (IMF) recommended that El Salvador discontinue the use of Bitcoin (BTC) as the legal tender in the country. The report was posted after bilateral conversations with El Salvador.
According to a statement released on Tuesday, IMF directors stated:
That there are large risks associated with the use of bitcoin on financial stability, financial integrity, and consumer protection, as well as the associated fiscal contingent liabilities.
El Salvador was the world’s first country to adopt Bitcoin as legal tender, alongside the U.S. dollar. In addition, El Salvador started purchasing Bitcoin last year when it was trading at around $50,000 per token. Last Friday, El Salvador bought 410 BTC for $15 million.
On the other hand, Bitcoin has fallen nearly 50% since its peak in early November, which puts El Salvador’s loss at about $20 million. In fact, Bitcoin was trading at $36,671 on Tuesday afternoon, a slight rise from Saturday when it fell below $35,000 and marked its lowest level since July.
Furthermore, the IMF says that some directors had expressed concern over the risks associated with issuing bitcoin-backed bonds. This refers to the President’s plan to raise $1 billion through Bitcoin Bond in partnership with Blockstream.
Meanwhile, El Salvador stamped its move into Bitcoin with the launching of a national virtual wallet called Chivo. In addition, the wallet offers no-fee transactions and allows for quick cross-border payments.
Likewise, IMF directors agreed that the Chivo e-wallet could facilitate digital means of payment. At the same time, they emphasized the need for strict regulatory oversight.