“Given the high volatility of bitcoin prices, its use as legal tender implies significant risks for consumer protection, integrity and financial stability”, this was the warning made by a mission of the International Monetary Fund (IMF) after a visit to El Salvador on November 22.
The Central American country has bitcoin as its legal tender and that has caused some discomfort to international organizations. In fact, this is not the first wake-up call made by the IMF, last June, it also released its position against the Bitcoin Law, proposed by the Salvadoran president, Nayib Bukele.
In This opportunity, the IMF indicated that bitcoin should not be used as legal tender because it gives rise to “contingent fiscal liabilities”, which can generate large increases in public debt, he explained the IMF in a document.
Similarly, the mission that visited El Salvador made a series of proposals, among them, they recommend that the scope of the Bitcoin Law be reduced , as well as that greater regulations be established for the wallet for bitcoin Chivo Wallet and for other similar ones.
In that sense, they consider that Chivo Wallet should be required to fully safeguard the funds of customers, both in US dollars and in bitcoin, through the segregation and protection of reserve assets.
Additionally, the IMF suggests strengthening the regulation and supervision of its payment system to combat money laundering and financing terrorism (ALM).
Positive feedback from the IMF
The technical evaluation of the financial agency also highlighted aspects positive. Among those, they highlighted the management of the pandemic, by the Government, highlighting the measures of early detection, containment of the virus in a timely and effective manner.
They recognized that the country reduced costs and diversified the energy matrix , promoted economic diversification and financial inclusion.
Likewise, they endorsed the expansionary economic policies and, for the first time, announced that the Salvadoran economy will grow 10 % this year. Although they do not explain if this is due to the arrival of bitcoin to the country.
For his part, President Bukele reacted to the IMF report, through Twitter. “Although we obviously do not agree on some things, such as the adoption of bitcoin, the analysis they make of our country is interesting,” said the president.
Bitcoin City is not in the IMF report
The evaluation made by the IMF, does not include its point of view on Bitcoin City , since it was made prior to the announcement of Bukele.
Bitcoin City is going to be the first «bitcoiner city» powered by geothermal energy and almost tax-free, as reported by CriptoNoticias.
The city will be exempt income, capital gains, property, contracting and municipal taxes. This is part of a strategy to attract private investment to the country by the world’s bitcoiners, as they now have greater economic incentives to establish their businesses in El Salvador.