Adopting Bitcoin as a national currency is an “inadvisable shortcut,” says the International Monetary Fund (IMF), repeating earlier warnings just days ahead of El Salvador’s big crypto experiment.
The Washington-based finance overlord reiterated its concerns on Sunday by subtweeting El Salvador with a blog post (originally published in July 2021).
IMF’s post, titled Cryptoassets as National Currency? A Step Too Far, generally suggests recognizing Bitcoin as legal tender is a bad idea.
- El Salvador is set to give Bitcoin the same status as the US Dollar on September 7.
- The move will make the world’s largest crypto by market capitalization an official national currency.
- Bitcoin won’t replace the US dollar, but new legislation will recognize it as legal tender.
Crypto assets like Bitcoin “come with substantial risks to macro-financial stability, financial integrity, consumer protection, and the environment,” according to the IMF.
IMF says move threatens economic stability
El Salvador plans to accept tax contributions in Bitcoin. The IMF says this could make government tax revenues vulnerable to exchange rate risk due to potential price volatility.
While the IMF concedes that cryptocurrencies offer some benefits (such as financial inclusion and cheaper transactions), it maintains that risks outweigh any potential benefits.
“Households and businesses could lose wealth through large swings in value, fraud, or cyber-attacks,” warns the IMF.
The Fund also highlights potential for illegal activity, which is sometimes associated with cryptocurrencies.
“Without robust anti-money laundering and combating the financing of terrorism measures, cryptoassets can be used to launder ill-gotten money, fund terrorism, and evade taxes.”
The organization assists with the financial stability of its 190 countries; El Salvador has been a member since 1946.
Although he pursues Bitcoin against the Fund’s advice, president Nayib Bukele is also angling for a $1.3 billion IMF loan.
Some El Savadoran’s don’t believe in Bitcoin
The IMF’s latest Bitcoin bashing comes only days after hundreds protested in El Salvador’s capital city.
Euro News reported that veterans and pensioners among the crowds were concerned that Bitcoin will be used instead of the US dollar for welfare payments.
Local economist Ricardo Castañeda told the Guardian, “I don’t think the president has fully understood the implications of the law,” adding that Bitcoin adoption could “convert the country into a haven for money laundering.”
No doubt, the protests were spurred by uncertainty due to the ever-changing sales pitch from the El Salvadoran government.
Initially, merchants were told they could not refuse Bitcoin payments. Article 7 of the Bitcoin Law states that “every economic agent must accept bitcoin as payment when offered.”
Bukele later clarified the use of Bitcoin would be optional in a national address.
At one stage, reports indicated El Salvador would issue a USD stablecoin called the Colon dollar — a reference to the country’s pre-USD days.
However, the government told reporters that plan had been scrapped.
In any case, should citizens get on board with Bitcoin, they can purportedly expect $30 worth of free BTC in the government-backed digital wallet, Chivo.
The Guardian later reported rumors of delays in Chivo’s rollout.
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