IMF warns El Salvador to consider Bitcoin risks legal tender

The International Monetary Fund (IMF) recommended that El Salvador stop using Bitcoin as legal tender, highlighting the financial and consumer risks associated with the cryptocurrency, shortly after the country’s President Nayib Bukele announced plans to the world’s first Bitcoin city, powered by a volcano and funded by cryptocurrency bonds. El Salvador, a country that has used the US dollar as its primary fiat for more than two decades, legalized Bitcoin as an official tender in September and was able to reap a profit as well.

In a statement, the IMF acknowledged that Bitcoin, and cryptocurrencies in general, can facilitate efficient payments, but allowing them as legal tender will likely pose problems for financial stability. “Given Bitcoin’s high price volatility, its use as legal tender carries significant risks to consumer protection, financial integrity and financial stability. Its use also gives rise to potential tax liabilities. these risks, bitcoin should not be used as an IMF staff recommends narrowing the scope of the bitcoin law and strengthening the regulation and supervision of the new payments ecosystem, ”the IMF said in a statement.

The global agency also called on El Salvador to narrow the scope of its Bitcoin law and strengthen regulation and oversight of the new payments ecosystem.

El Salvador plans to build the world’s first “Bitcoin City”, initially funded by Bitcoin-backed bonds, President Nayib Bukele said over the weekend, doubling his bet to mine cryptocurrency to fuel investments in the Central American countries.

Speaking at an event closing a week of Bitcoin promotion in El Salvador, Bukele said the planned city in the eastern region of La Union will get geothermal power from a volcano and will not levy any taxes except value added tax (VAT).

The IMF regularly undertakes Article IV missions to member countries to consult with government officials before they request to use IMF resources. The plans to issue sovereign bonds and use the proceeds to buy Bitcoin and fund infrastructure plans announced on November 20 came after the technical work of the mission was completed and were not discussed with the authorities, “the IMF said.

This is not the first time that the IMF has warned the Latin American country against Bitcoin. Earlier this year, when El Salvador had just passed its landmark Bitcoin law, the IMF had a predictable reaction by opposing its outlook. Yet despite its multiple warnings against the risks of a Bitcoin legalized financial system, El Salvador had implemented its plan. The country has launched its Bitcoin-powered Chivo Wallet app along with several ATMs to facilitate daily Bitcoin transactions and fund transfers.

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