IMF Urges El Salvador to Repeal Bitcoin as Legal Tender

  • The Fund had previously warned that the adoption of the cryptocurrency “can bring significant risks” for the Salvadoran economy.
  • President Nayib Bukele has not yet reacted to the demand from the IMF, but on Monday stated that this is the time to invest in BTC.

The International Monetary Fund (IMF) urged El Salvador on Tuesday 25th to “eliminate the quality of legal tender” of Bitcoin while expressing its “concern” about the issuance of cryptocurrency-backed bonds that the country’s government plans to make in Central America, reported EFE.

In a press statement, the international credit organization announced that the Executive Board had concluded its Article IV consultation with El Salvador on January 24th. During the annual consultation, the strategy applied by the government of Nayib Bukele to address the pandemic was analyzed, as well as the implementation of Bitcoin as a payment instrument.

President Bukele has made the adoption of BTC as a payment method, and the promotion of El Salvador as a financial center for cryptocurrency in Latin America, the main economic projects of his government.

Through his personal Twitter account, the leader of the Central American nation regularly promotes the purchase of Bitcoin and other projects that revolve around the cryptocurrency, with Bitcoin City and the schools for teaching blockchain technology that it intends to finance by means of its controversial crypto bonds or “volcano bonds.”

The IMF Has Not Been Able to Meet with Bukele

In early January, El Salvador’s Finance Minister, Alejandro Zelaya, announced that the government would be sending close to 20 bills to Congress to create a regulatory framework for structuring the issuance of bitcoin bonds.

So far, Bukele has not responded to the IMF’s demand. In November, he rejected a report from the body which warned of the underlying risks faced by the country due to the adoption of Bitcoin as a legal tender on November 7th, 2021.

In the report, the Fund recommended that El Salvador “limit the scope of the Bitcoin Law” across the economy in order to avoid further risk. Bukele not only ignored the agency’s recommendation, but also responded in a mocking tone.

The IMF asked Bukele to meet in order to discuss the topic of Bitcoin being legal tender and its associated risks, but so far it has not come to fruition.

"The adoption of bitcoin as a currency generates a series of macroeconomic, financial and legal issues that require very careful analysis," said Fund spokesman Gerry Rice, according to a review by El País.

Last week Bukele visited Turkey, where he was received and praised by President Recep Tayyip Erdogan. Both leaders signed six bilateral cooperation agreements in various sectors, including trade, economy, defense, education and diplomacy.

During the meeting Bukele and Erdogan spoke about Bitcoin and cryptocurrencies. The exact nature of what was discussed between the two presidents regarding these topics is as yet unknown. Turkey is currently experiencing an extreme  currency crisis as a result of the deterioration of the Turkish lira.

On the Flipside

  • The demand made by the IMF coincides with the degeneration of BTC and other cryptocurrencies in the sector. So far this month, the world’s largest cryptocurrency by market cap has lost nearly half of its value.

Criticism against Bukele both within and without of El Salvador has also increased, though the president reacted to these mockingly as well:

“Most people go in when the price is up, but the safest and most profitable moment to buy is when the price is down. It's not rocket science. So invest a piece of your McDonald's paycheck in Bitcoin. Now go back to flip more burgers you lazy f**k!” he wrote.

Although the IMF has already issued several warnings to the Salvadoran government about the risks associated with Bitcoin due to its high volatility, suggesting that effective measures should be taken to regulate the cryptocurrency, Bukele believes that his country is in a good place.

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    This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed to be financial legal or tax advice. Trading Forex, cryptocurrencies, and CFDs poses a considerable risk of loss

    Author

    Santiago is a Venezuelan blockchain reporter specializing in economic and financial issues, with special emphasis on stablecoin trading as well as political and regulatory issues related to Latin America. Every day he reviews and analyzes movements in the crypto market to offer readers first-hand information that can help them make sound decisions in the exciting world of crypto.