The International Monetary Fund (IMF) has cautioned El Salvador against increasing its government's involvement with Bitcoin due to the speculative nature of crypto markets.
In a statement on February 10th, the IMF stated that the risks associated with Bitcoin have not yet affected El Salvador as its use of Bitcoin is limited, but the country should exercise caution. The IMF staff recently visited El Salvador.
The International Monetary Fund has advised El Salvador to address the risks associated with Bitcoin that could threaten the country's fiscal sustainability, consumer protection, financial integrity, and stability.
The IMF emphasised the need to recognise these risks, given that the use of Bitcoin in El Salvador may increase since it has been recognised as a legal tender in the country since September 2021.
The International Monetary Fund asked El Salvador to reconsider its plan to issue tokenised bonds due to their legal and financial risks.
The IMF noted the speculative nature of crypto markets, along with the country's fiscal vulnerability, and recommended caution in expanding the government's exposure to Bitcoin.
The Salvadoran government was also urged to provide greater transparency regarding its Bitcoin transactions and the financial situation of its state-owned Bitcoin wallet, the Chivo wallet.
Recently, El Salvador established a legal framework for a Bitcoin-backed bond called the "Volcano bond”. However, the International Monetary Fund (IMF) has advised El Salvador to reconsider the issuance of these bonds due to their legal and financial risks.
The Salvadoran government had planned to use the bond proceeds to pay off sovereign debt and fund the construction of a proposed "Bitcoin City" aimed at attracting more crypto investors.
The country aims to address any potential crypto-related criminal activity in 2023.
The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash