IMF Says El Salvador’s Bitcoin Risk Has Not Materialized But ‘Should Be Addressed’
By Brendan O’Boyle
(Reuters) – Risks related to El Salvador’s embrace of bitcoin “have not materialized,” but use of the cryptocurrency still requires transparency and attention, the International Monetary Fund (IMF) said on Friday in a statement following a visit to the Central American country.
“Given the legal risks, fiscal fragility and largely speculative nature of crypto markets, authorities should reconsider their plans to expand government exposure to bitcoin,” the IMF said in a statement.
The annual visit by IMF staff followed a $600 million bond disbursement by El Salvador last month amid investor concerns over funding sources and fiscal policy.
The IMF’s so-called “Article IV” visits have been sharply criticized in the past. El Salvador’s move to make bitcoin legal tender in September 2021 effectively closed the doors to IMF funding.
While the lender noted that risks “have not materialized due to the limited bitcoin use so far,” it said the cryptocurrency’s “use could grow given legal tender status and new legislative reforms to encourage the use of cryptoassets, including tokenized bonds.” .
El Salvador’s Congress last month passed a law regulating the issuance of digital assets by both the state and private entities.
President Nayib Bukele announced on Twitter a series of purchases of around 2,380 bitcoin before mid-November, when he said the Treasury would buy one bitcoin every day.
If these purchases were made, the government has acquired nearly 2,470 coins for about $106.4 million. The current value of this investment is $52.2 million, for a paper loss of over 50%.
The figures are estimates from Reuters, as the government does not officially disclose purchases, holdings or where the coins are kept.
“Greater transparency over the government’s transactions in bitcoin and the financial situation of the state-owned bitcoin wallet (Chivo) remains important,” the IMF said.
The IMF highlighted the “full recovery” of El Salvador’s economy to pre-pandemic levels, “driven by the effective government response to the health crisis.”
Real GDP is projected to grow by 2.4 percent in 2023, the IMF said, above the historical average.
However, the lender also expressed concern over a growing current account deficit and the possible spillover effects of a recession in the US.
(Reporting by Brendan O’Boyle and Rodrigo Campos; Additional reporting by Kylie Madry; Editing by Anthony Esposito and David Gregorio)
