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IMF Warns El Salvador Against Adoption of Bitcoin as Legal Currency

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Nayib Bukele and his wife, Gabriela de Bukele, wave to supporters after the first official presidential election. Image by Jose Cabezas, Reuters

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The International Monetary Fund (IMF) is a financial organization comprised of 190 member countries. It exists to stabilize worldwide monetary collaboration and trade. Given its global impetus, the IMF has issued a third public warning to El Salvador against adopting Bitcoin, the emerging instant-payment digital cryptocurrency

El Salvador became the first country in the world to accept Bitcoin as legal tender on September 7, 2021.However, that history-making has been critiqued multiple times as less than laudable.

The IMF believes that Bitcoin is an unwise national venture.

As Jeff Benson of Decrypt summarized, the organization “monitors the global economic system” and “discusses problem areas and potential fixes” pertaining to its dues-paying members.

Following consultation with country officials, the IMF declared that El Salvador is in a sub-optimal economic state due to its contracting economy and expanding public debt, stating, “The adoption of a cryptocurrency as legal tender entails large risks for financial and market integrity, financial stability, and consumer protection. It also can create contingent liabilities.”

The IMF issued its first warning on June 7, 2021, after the President of El Salvador Nayib Bukele announced his plan to commence circulating the cryptocurrency during an appearance two days prior at an annual Bitcoin conference in Miami.

During his speech, Bukele revealed that he would propose congressional legislation requiring businesses and citizens accept Bitcoin as a form of payment unless they had insufficient internet access to implement such transactions.

Since January 1, 2001, the Salvadoran economy has been dollarized, meaning that the United States dollar is the primary currency. 

During Bitcoin discussion within the Legislative Assembly of El Salvador, IMF Spokesman Gerry Rice forewarned of cryptocurrency risks, saying, “Adoption of Bitcoin as legal tender raises a number of macroeconomic, financial, and legal issues that require very careful analysis. Crypto assets can pose significant risks, and effective regulatory measures are very important when dealing with them.”

The legislation still passed.

On August 28, 2021, the IMF reiterated its initial Bitcoin aversion through this Twitter post: “Privately issued cryptoassets like Bitcoin come with substantial risks. Making them equivalent to a national currency is an inadvisable shortcut.”

The Dallas Express contacted Bitcoin Podcaster, Swan Bitcoin International Managing Director, and Bitcoiner Ventures Partner Stephan Livera.

In response to the serial admonishment targeted toward El Salvador, Livera said that the IMF-claimed “large risks for financial and market integrity, financial stability, and consumer protection” are not well-founded.

Livera also noted that the IMF is not considering a Bitcoin-catalyzed benefit to the country: the “upside of attracting new tourists, entrepreneurs, and capital.”

“It’s a very one-sided presentation by an organization that obviously stands to gain by keeping El Salvador away from Bitcoin as legal tender. Who put the IMF in charge anyway?” Livera leveled.

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