According to a recent mission statement published by International Monetary: Fund (IMF), El Salvador adopted Bitcoin as legal tender and has been risk averse so far. The IMF says the risks have not materialized due to the restricted use of Bitcoin. But the United Nations financial institution has warned that fiat currency status could pose risks to the country’s “financial integrity and stability” if it fosters growth.
IMF Discusses Bitcoin’s Legal Tender Status in El Salvador: Usage Limits Avert Risk, but Growth May Fuel Concerns
2023 On February 10, the International Monetary Fund (IMF) final mission statement on El Salvador and its economy. The IMF will visit San Salvador for the 2023 Article IV consultations from 30 January to 8 February. In a statement, the IMF discussed Bitcoin adoption in El Salvador, stating that “risks need to be addressed.” The IMF now acknowledges that the risks posed for 2021 have largely been averted.
“As research and remittance data suggest, bitcoin’s limited use so far has not materialized the risks, but its status as a fiat currency and cryptocurrency The use of Bitcoin is likely to expand given new legislative changes to facilitate the use of Bitcoin, including tokenized bonds (the Digital Assets Act),” detailed the IMF researchers. increase. “In this context, fundamental risks to financial integrity and stability, fiscal sustainability and consumer protection remain and the 2021 Article 4 recommendations remain in force.” 22}
Growth has slowed since El Salvador declared Bitcoin as legal tender in September 2021. The country regularly invested in Bitcoin and added it to its treasury. However, the IMF has stressed the need for greater transparency for government Bitcoin purchases and the state-owned Chivo wallet. “Increasing transparency about government bitcoin transactions and the financial status of the state-owned bitcoin wallet (Chivo) is critical, especially to assess potential financial contingencies and counterparty risks,” the agency said. says.
In addition to the risks associated with Bitcoin, the slow pace of adoption, and the negative impact on the economy, El Salvador’s economy grew rapidly last year, according to the IMF. The IMF estimates that the economy will grow by 2.8% in 2022. Amid heightened economic fragility in 2022, the IMF argues that the Salvadoran Ministry of Finance still lacks access to international capital markets.
The IMF has identified two major issues that the government of El Salvador can address. Improving anti-money laundering/combating the financing of terrorism (AML/CFT) policies and increasing fiscal transparency.
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