According to a brand-new mission statement published by the International Monetary Fund (IMF), El Salvador has adopted bitcoin as legal tender and has avoided hazards so far. The IMF states that the risks have not materialized due to the limited use of bitcoin. However, the United Nations financial agency alerts that if its legal tender status drives growth, it could pose risks to the country’s “financial integrity and permanence.”
IMF Discusses El Salvador’s Bitcoin Legal Tender Status: Limited Use Averts Risks, but Growth Could Fuel Responsibilities
On Feb. 10, 2023, the International Monetary Fund (IMF) released a concluding mission statement regarding El Salvador and its economy. The IMF visited San Salvador from Jan. 30 to Feb. 8 for the 2023 Article IV consultation. In the asseveration, the IMF discusses bitcoin adoption in El Salvador and states that “risks should be addressed.” Currently, the IMF acknowledges that the imperils it raised in 2021 have mostly been avoided.
“While risks have not materialized due to the limited bitcoin use so far—as suggested by scan and remittances data—its use could grow given its legal tender status and new legislative reforms to encourage the use of crypto assets, embodying tokenized bonds (Digital Assets Law),” the IMF’s researchers detail. “In this context, underlying risks to financial probity and stability, fiscal sustainability, and consumer protection persist, and the recommendations of the 2021 Article IV remain valid.”
El Salvador pronounced bitcoin as legal tender in September 2021, and since then, growth has been sluggish. The country has made habitual bitcoin investments and added it to its treasury. However, the IMF emphasizes the need for more transparency in the government’s bitcoin purchases and the Chivo purse, which is state-owned. “Greater transparency regarding the government’s bitcoin transactions and the financial status of the state-owned bitcoin billfold (Chivo) is crucial, particularly to evaluate underlying fiscal contingencies and counterparty risks,” the agency noted.
Besides the chances associated with bitcoin, the slow pace of its adoption, and adverse economic shocks, the Salvadoran economy grew at the speed of light last year, according to the IMF. The IMF estimates that the economy expanded by 2.8% in 2022. Amid mounting economic vulnerabilities in 2022, the IMF asserts that the Salvadoran Exchequer still lacks access to international capital markets.
The IMF identifies two major issues that the Salvadoran government could greet: implementing better Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) policies and increasing fiscal transparency.
What are your thoughts about the IMF’s recommendations for the country’s financial stability and integrity? Let us know what you think almost this subject in the comments section below.
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