The International Monetary Fund (IMF) has continued to question the viability of El Salvador’s adoption of Bitcoin (BTC) as legal tender.
Risks associated with El Salvador’s adoption of bitcoin have yet to materialize following minimal use of the cryptocurrency, IMF says, noting survey and remittance data confirm concern, l ‘agency said in a blog post on February 10.
Interestingly, in the post, the IMF noted that declaring Bitcoin legal tender could increase its use supported by factors such as further legislative reforms. The IMF has also highlighted the need for greater transparency on government bitcoin transactions.
“While the risks have not materialized due to Bitcoin’s limited use so far – as survey and remittance data suggest – its use could increase given its legal tender status and new legislative reforms to encourage the use of crypto assets, including token bonds (Digital Assets Act),” the IMF said.
In addition, the IMF pointed out that risks related to financial integrity and stability, fiscal sustainability, and consumer protection still exist. Therefore, the body called on the government to address the concerns identified based on the previous recommendations.
Concerns over El Salvadro’s adoption of bitcoin
Notably, El Salvador’s decision to adopt Bitcoin as legal tender has drawn both criticism and support from various stakeholders, with concerns over the country’s economic stability and financial inclusiveness.
The government hopes the Bitcoin adoption movement will lead to greater financial inclusion for its citizens, especially those without access to traditional banking services. In this line, the director of the IMF Kristalina Georgieva warned that although digital currency is used for services similar to money, it should not be confused with currencies.
Amid IMF concerns, an October 2022 report reported that about 80% of citizens believed that the Bitcoin strategy had failed. Notably, El Salvador is forging ahead with its Bitcoin adoption focusing on support structures such as setting up mechanisms for mining operations.
El Salvador’s economy is growing
It should be noted that despite initial forecasts of the negative impact on the Salvadoran economy from the Bitcoin decision, the country’s economy grew by almost 3% in 2022.
In general, the IMF has been among the strongest crusaders against the adoption of cryptocurrencies by various jurisdictions, citing a range of concerns primarily around transparency. For example, as reported per Finbold, the agency alleged that the use of digital assets was prevalent in corrupt countries characterized by tighter capital restrictions.