(Updated with quotes from the IMF statement, adds details)
SAN SALVADOR, Nov 22 (Reuters) – Bitcoin should not be adopted as legal tender in El Salvador because its volatility implies risks for consumers and the integrity of the Central American country’s financial system, the International Monetary Fund (IMF) recommended on Monday. ).
El Salvador became the first country in the world in September to adopt cryptoassets as legal tender, parallel to the US dollar. On Saturday, the country’s president, Nayib Bukele, announced his plan to build the first “Bitcoin City”, initially financed with Bitcoin-backed bonds.
But an IMF mission, which was recently in El Salvador, recommended that the authorities not use bitcoin as legal tender due to the high risks involved and suggests greater controls in the implementation of the policy.
“Given the high volatility of bitcoin, its use as legal tender involves great risks to consumer protection, the integrity of the financial system and financial stability,” the IMF said in a statement.
“Its use can also cause fiscal contingencies. Due to these risks, bitcoin should not be adopted as legal tender. The mission recommends limiting the scope of the Bitcoin law and urges to strengthen the regulation and supervision of the new payments ecosystem.” added.
The agency, which estimates that the economy of El Salvador will have a growth of 10% in 2021 and 3.2% in 2022, recognized that the adoption of bitcoin promotes financial inclusion and economic growth, but warned about the possible dangers in the finances of the impoverished nation.
“The International Monetary Fund has just published its technical evaluation of El Salvador (…) And although we obviously do not agree on some things, such as the adoption of bitcoin, the analysis they make of our country is interesting,” Bukele replied in Twitter
The IMF, which estimates that the country’s public debt could reach 85% of its Gross Domestic Product (GDP), recommended implementing a fiscal consolidation package that amounts to approximately 4% of GDP over the next three years.
El Salvador and the IMF are negotiating a financing agreement for 1.3 billion dollars. (Reporting by Nelson Renteria; Edited by Diego Oré)