The IMF Advises El Salvador To Be CAREful In Implementing Bitcoin

El Salvador's President, Nayib Bukele. (photo: twitter @nayibbukele)

JAKARTA - The World Monetary Organization (IMF) advises El Salvador to be careful in expanding the government's exposure to Bitcoin due to speculative nature of the crypto market.

In a statement on February 10, the IMF stressed that the risk of Bitcoin for El Salvador has not been "realized" due to the "limited" use of Bitcoin in the country. The IMF staff has just made a visit to the country.

The IMF states that El Salvador must address the risk of Bitcoin for the sustainability of the country's fiscal and consumer protection, as well as its integrity and financial stability. They emphasize the importance of recognizing these risks, as the use of Bitcoin in El Salvador "can grow", given that it is recognized as legal tender in the country since September 2021.

El Salvador is recommended to rethink its decision to issue a bond token, as the IMF states that it should be "avoided" due to legal and financial risks.

"Considering the legal risks, fiscal fregility and speculative nature of the crypto market, authorities should reconsider their plans to expand government exposure to Bitcoin, including by issuing bond tokens," the IMF said as quoted by Cointelegraph.

There needs to be a "larger transparency" of the government of President Nasyib Bukele, also emphasized about their Bitcoin transactions and the financial situation of the state-owned Bitcoin wallet, Chivo wallet. This is after recent news that the legal framework for the Bitcoin-backed bond in El Salvador, known as the "Volcano bond", was formed on January 11.

The government of El Salvador said that this bond would be used to pay off the state's debt and provide funds for the development of the "Bitcoin City" they planned.

Bitcoin City is part of El Salvador's plan to continue attracting crypto investors. It was previously noted that the country's priority in 2023 is to address cryptocurrency-based activities that may occur.

Guillermo Contreras, CEO of DitoBanx, previously told Cointelegraph on January 6 that the opening of El Salvador's National Bitcoin Office would serve as a "central entity" to address these issues.