IMF Suggests El Salvador to Avoid Using Bitcoin as Legal Tender

Although El Salvador aims to establish a Bitcoin city of its own, the International Monetary Fund (IMF) on Monday advised against adopting Bitcoin as legal cash in the country. The International Monetary Fund (IMF) has issued a caution in light of the dangers associated with cryptocurrencies. It thinks that the use of Bitcoin as legal cash poses major concerns to consumer safety, fiscal responsibility, and financial soundness as a result of the considerable volatility of the cryptocurrency’s price.

The International Monetary Fund (IMF) considers that the adoption of Bitcoin as a currency results in the creation of fiscal obligations, as stated in the staff concluding statement of the Article IV mission to El Salvador in 2021. Article IV missions to member nations are carried out on a regular basis by the IMF in order to meet with government officials before a petition for IMF resources is made.

El Salvador became the foremost nation to recognise bitcoin as legal money, beside the US dollar, when it did so in September. “Staff advises that the ambit of the bitcoin legislation be narrowed, and that the regulation and oversight of the new payment environment be strengthened,” the International Monetary Fund said.

Interestingly, the IMF declaration comes just a few days after El Salvador President Nayib Bukele declared that the government was going to establish the world’s first Bitcoin city, which would be first financed by bitcoin bonds, according to Business Insider. Bukele said that the city’s energy source would come from a volcano and that the city would not impose any taxes other than the value added tax.

Salvadoran President thinks that the adoption of Bitcoin would facilitate the remittance of millions of Salvadorans living abroad to their families back home. Besides that, he claims that it would promote financial inclusion as well as investment, tourism, and growth.

“Despite the fact that we definitely disagree on certain issues, such as the adoption of #Bitcoin, the analysis it provides of our nation is intriguing,” Bukele remarked in response to the IMF’s comments. The International Monetary Fund also predicted that El Salvador’s economy would expand by about 10% in 2021 and 3.2 percent in 2022, and that the Central American country’s public debt would reach 85 percent of its GDP by the end of this year.