According to a recent mission statement published by the International Monetary Fund (IMF), El Salvador has adopted bitcoin as legal tender and has avoided risk so far. The IMF states that the risk has not materialized due to the limited use of bitcoin. However, the UN’s financial agency warns that if legal tender status drives growth, it could pose a risk to the country’s “financial integrity and stability.”
IMF Debates El Salvador’s Bitcoin Legal Tender Status: Limited Use Averts Risks, But Growth May Raise Concerns
On February 10, 2023, the International Monetary Fund (IMF) issued a final mission statement regarding El Salvador and its economy. The IMF visited San Salvador from January 30 to February 8 for the 2023 Article IV consultation. In the statement, the IMF discusses bitcoin adoption in El Salvador and states that “risks should be addressed.” For now, the IMF acknowledges that the risk it raised in 2021 has largely been averted.
“Although risks have not materialized due to the limited use of bitcoin so far – as suggested by survey and money transfer data – its use could grow given legal tender status and new legislative reforms to encourage the use of crypto-assets, including tokenized bonds ( Digital Assets Law),” detailed IMF researchers. “In this context, underlying risks to financial integrity and stability, fiscal sustainability and consumer protection persist, and the 2021 Article IV recommendations remain valid.”
El Salvador declared bitcoin legal tender in September 2021, and since then growth has been weak. The country has made regular bitcoin investments and added it to the treasury. However, the IMF emphasizes the need for more transparency in the state’s bitcoin purchases and the state-owned Chivo wallet. “Greater transparency regarding the government’s bitcoin transactions and the financial status of the state-owned bitcoin wallet (Chivo) is essential, especially to evaluate underlying fiscal conditions and counterparty risk,” the agency noted.
In addition to the risks associated with bitcoin, its slow adoption and adverse economic shocks, the Salvadoran economy grew rapidly last year, according to the IMF. The IMF projects that the economy grew by 2.8% in 2022. Amid growing economic vulnerabilities in 2022, the IMF claims that Salvadoran treasury still lacks access to international capital markets.
The IMF identifies two main issues that the Salvadoran government can address: implementing better anti-money laundering/countering the financing of terrorism (AML/CFT) policies and increasing fiscal transparency.
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2.8% growth, Article IV consultation, Bitcoin, consumer protection, counterparty risk, cryptoassets, financial vulnerabilities, El Salvador, financial integrity, financial situation, fiscal conditions, fiscal sustainability, fiscal transparency, government transactions, growth, IMF, International Monetary Fund , Investments, legal tender, legislative reforms, limited use, statement of purpose, Nayib Bukele, Recommendations, risks, Salvadoran economy, Salvadoran President Nayib Bukele, Stability, state-owned wallet, tokenized bonds, Transparency, Treasury
What are your thoughts on the IMF’s recommendations for the country’s financial stability and integrity? Let us know what you think about this topic in the comments section below.
Jamie Redman
Jamie Redman is the news editor at Bitcoin.com News and a financial technology journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open source and decentralized applications. Since September 2015, Redman has written more than 6,000 articles for Bitcoin.com News about the disruptive protocols emerging today.
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