In El Salvador, the Bitcoin law went into effect in September. On Wednesday, the International Monetary Fund (IMF) said it wants the nation to drop the highly volatile cryptocurrency as legal tender and strictly regulate the electronic wallet.
El Salvador’s government has pushed adoption of Bitcoin across the country, but the IMF urged the authorities to narrow the scope of the Bitcoin law. In particular, by removing Bitcoin’s legal tender status.
The IMF statement warns that the adoption of a cryptocurrency as legal tender entails large risks for financial and market integrity. In other words, the El Salvadorian financial stability and consumer protection are under attack. President Nayib Bukele’s office did not immediately comment on the IMF’s statement.
Last year, President Bukele decided to promote the adoption as a way for Salvadorans to avoid money transfer fees when relatives living outside the country sent home remittances. However, from the start there were concerns that a cryptocurrency created to be beyond the control of governments would attract criminal activity.
Meantime, El Salvador’s law called for all businesses, with the technological ability, to accept Bitcoin as payment. The rollout was glitchy, but seems to have smoothed out.
The IMF finds that the economic situation in the Latin American country is currently experiencing a surge in infections, but it was aggressive in vaccinating the population and kept a relatively low death toll. The financial body also notes that the economy was projected to grow 10% in 2021 after contracting 7.9% the year before.
The IMF board did see other problems on the horizon, however, if the government does not tighten up its spending. “Persistent fiscal deficits and high debt service are leading to large and increasing financing needs,” the statement reads.
So far, public debt is expected to rise to about 96% of GDP in 2026 on an unsustainable path, the IMF added.