The International Monetary Fund (IMF) on Monday warned El Salvador not to use bitcoin as a legal tender, citing various risks of financial and consumer losses.
“Due to the high price volatility of bitcoin, its use as a legal tender poses significant risks to consumer protection, financial integrity and financial stability,” the IMF statement said on November 22.
“Its use carries financial liabilities. Because of those risks, Bitcoin should not be used as a legal tender.”
The IMF statement further made several recommendations for El Salvador, including reducing the scope of bitcoin law. It seeks to strengthen the control and oversight of its payment system to protect consumers, protect against money laundering and counterfeiting (AML/CFT) and risk management.
“Like any other e-wallets, Chivo Reserve needs to fully protect consumer funds in US dollars and bitcoins by segregating assets and ring-fencing,” the IMF statement said. It recognizes that “crypto-technologies” and digital systems can help make payments more efficient.
The IMF has called on El Salvador to “reduce the scope of bitcoin law” and strengthen “regulation and oversight of the new payment ecosystem”.
Furthermore, the IMF recommended the closure of the $150 million trust fund El Salvador would use to convert Bitcoin into US dollars.
The IMF also recommended that “immediate action be taken to limit financial obligations such as the cancellation of trust funds or the withdrawal of public subsidies to Chivo.” In addition, the country’s banking regulations state that it must have security measures that focus on dealing with bitcoin.
Soon after these series of recommendations El Salvador’s President Nayib Bukele addressed the gathering on Twitter.
The IMF has published El Salvador’s technical forecast for 2021, “Bukele wrote in Spanish.
“Although we disagree on some issues such as accepting bitcoin, their analysis of our country is interesting.” He shared a series of messages with highlighted parts indicating more favorable takeaways from the statements.
Bloomberg reports suggest that the IMF and El Salvador are negotiating a $1.3 billion loan agreement. These closing statements contain the basic results of the staff after completing their official mission to a country.
The IMF did not anticipate President Bukele’s recent announcement that bitcoin bonds would be issued in El Salvador, after the end of the mission.