The Risks of El Salvador’s Embrace of Bitcoin ‘Haven’t Materialized’
The International Monetary Fund (IMF) has continued to question the viability of El Salvador’s adoption of Bitcoin (BTC) as legal tender.
According to the IMF, the risks associated with El Salvador’s adoption of Bitcoin have yet to materialize after minimal use of the cryptocurrency, noting that data from surveys and remittances back up the concern, the agency said in a blog post on February 10.
Interestingly, the IMF noted in the post that the declaration of Bitcoin as legal tender could increase its use supported by factors such as new legislative reforms. The IMF also stressed the need for greater transparency around the government’s Bitcoin transactions.
“While risks have not materialized due to the limited Bitcoin use so far – as suggested by survey and money transfer data – use could grow given legal tender status and new legislative reforms to encourage the use of crypto-assets, including tokenized bonds ( Digital Assets) Law),” the IMF said.
In addition, the IMF pointed out that risks around financial integrity and stability, fiscal sustainability and consumer protection still exist. Therefore, the body has asked the government to address the identified concerns based on previous recommendations.
Concerns Over El Salvador’s Bitcoin Adoption
In particular, El Salvador’s move to adopt Bitcoin as legal tender has been met with both criticism and support from various stakeholders, with concerns raised about the country’s economic stability and financial inclusion.
The government hopes that the Bitcoin adoption movement will lead to greater financial inclusion for citizens, especially those who lack access to traditional banking services. In this line, IMF chief Kristalina Georgieva warned that despite the fact that digital currencies are used for services similar to money, they should not be mistaken for currencies.
Amid the IMF’s concerns, an October 2022 report indicated that approximately 80% of citizens believed that the Bitcoin strategy was a failure. In particular, El Salvador is moving forward with its Bitcoin adoption by focusing on support structures such as setting up mechanisms for mining operations.
El Salvador’s economy is expanding
It is worth noting that despite initial predictions about the negative impact on El Salvador’s economy for the Bitcoin decision, the country’s economy expanded by almost 3% in 2022.
In general, the IMF has been among the biggest crusaders against the adoption of cryptocurrencies in various jurisdictions, citing a number of concerns mainly around transparency. For example, as reported by Finbold, the agency alleged that the use of digital assets was widespread in corrupt countries characterized by tighter capital restrictions.
