Ditch Bitcoin as Legal Tender, El Salvador Told
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Ditch Bitcoin as Legal Tender, El Salvador Told

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10 months ago

The International Monetary Fund says the cryptocurrency's use creates "large risks" when it comes to "financial stability, financial integrity and consumer protection."

Ditch Bitcoin as Legal Tender, El Salvador Told

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El Salvador is being urged to abandon Bitcoin as legal tender.

The International Monetary Fund says the cryptocurrency's use creates "large risks" when it comes to "financial stability, financial integrity and consumer protection."

In a statement, the IMF went on to warn that El Salvador's public debt is projected to reach 96% of GDP in 2026 — describing it as on an "unsustainable path."

It has been almost five months since the Central American country enacted the Bitcoin Law — and over that time, BTC has tumbled from highs of $69,000 to lows of $32,000.

El Salvador has been aggressively purchasing BTC throughout, with President Nayib Bukele apparently completing transactions on his phone, and the nation has lost millions on its investment. Undeterred, the leader is pushing ahead with plans to raise $1 billion by issuing bonds backed by Bitcoin.

It wasn't all doom and gloom in the IMF's statement, with directors acknowledging the need to boost financial inclusion given how many adults in the country are unbanked. Although they said the government's Chivo wallet could play a role here, they warned this ecosystem requires "strict regulation and oversight."

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The Wider Economic Picture

The IMF says that the coronavirus pandemic interrupted 10 years of economic growth in El Salvador — in line with many economies around the world — but noted the country is witnessing a "strong recovery."

Remittances have remained resilient in recent months, and El Salvador has some of the lowest rates for infections and deaths from COVID-19 in the region.

But data accompanying the statement also underlines the challenges that Bukele faces under his leadership. As of 2020, 26% of the population is below the poverty line in the country of 6.3 million people.

Critics of the IMF, many of them in the crypto space, are dismissive of its warnings — arguing that they are motivated to protect fiat currencies in a world turning to digital assets.

Bukele was equally dismissive of this latest statement. Retweeting a news report of what the IMF said, he added:

Reading between the lines, it's safe to say that Bukele has no plans to change course any time soon.

On a serious note, El Salvador's continued embrace of Bitcoin is affecting its ability to secure loans from the International Monetary Fund — and negotiations to secure $1.3 billion in funding have stalled over concerns about the nation's pro-crypto stance.

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