An increasing number of Salvadorans have been experimenting with Bitcoin since the country adopted it as a legal tender. But only a small fraction of the Central American nation’s businesses use Bitcoin payments. Well, technical problems have hampered the government’s adoption of cryptocurrency, disappointing even users who have committed to using the technology. Needless to say, various experts have raised red flags about the establishment of BTC in the country’s establishment.
Grim economic indicators
The executives of the International Monetary Fund (IMF) have urged El Salvador to remove Bitcoin’s status as a legal tender in the country. As reported in the “Article IV consultation”, it poses “major risks to financial and market integrity, financial stability and consumer protection”. It also creates contingent liabilities.
The Managing Director of the IMF emphasized or rather suggested,
“…Authorities narrow the scope of Bitcoin law by removing Bitcoin’s legal tender status. Several Directors also expressed concern about the risks associated with the issuance of Bitcoin-backed bonds.”
Furthermore, the Directors considered that authorities should strengthen anti-corruption and AML/CFT frameworks in line with international standards. As highlighted in the Bloomberg report, IMF concerns about Bitcoin have “hindered” negotiations with El Salvador over the IMF’s $1.3 billion loan provision.
The country started buying Bitcoin last year when it was trading around $50,000. Moreover bought at least 1,801 coins. In the short-term, it is down 45% from its peak near $68,000 in early November, the country is likely to lose about $20 million, according to Bloomberg News calculations.
Having said that, this is not the first time that directors at the IMF have raised concerns about this issue. Officials warn that some of the consequences of a country using BTC as its national currency ‘could be dire’. These signals include risks such as domestic prices becoming highly volatile, assets being used contrary to Anti-Money Laundering and Anti-Terrorist Financing measures.
Not only the IMF, even experts around the world are in the same group. For example, Andrew Bailey, Governor of the Bank of England has moderated several issues on the same issue.
But is it important?
Well, not really. El Salvador President Nayib Bukele made another Bitcoin purchase. He announced that El Salvador bought 410 Bitcoins for $15 million, adding to its crypto treasury. Also, consider this tweet:
https://t.co/s1F5kwOBen pic.twitter.com/LD0I2dBHha
– Nayib Bukele (@nayibbukele) January 26, 2022
Overall, it is true that crypto-related investments can boost economic activity in the country. That said, risk is involved no matter what.