IMF Warns El Salvador about risks with Bitcoin
2023.02.11 01:38
IMF Warns El Salvador about risks with Bitcoin
By Ray Johnson
Budrigannews.com – The International Monetary Fund (IMF) issued a statement on Friday following a visit to El Salvador, stating that risks associated with the country’s adoption of bitcoin “have not materialized” but that use of the cryptocurrency still requires transparency and attention.
“The authorities should reconsider their plans to expand government exposures to bitcoin, given the legal risks, fiscal fragility, and largely speculative nature of crypto markets,” the IMF stated in a statement.
El Salvador made a bond payment of $600 million last month, which sparked investor concerns about the country’s fiscal policy and financing sources.
In the past, the so-called “article IV” visit by the IMF has been extremely critical. When El Salvador made bitcoin legal tender in September 2021, IMF financing was effectively shut off.
Even though the lender stated that risks “have not materialized due to the limited use of bitcoin so far,” it stated that the cryptocurrency’s “use could grow given its legal tender status and new legislative reforms to encourage the use of crypto assets, including tokenized bonds.”
A law governing the state’s and private entities’ issuance of digital assets was approved by El Salvador’s Congress last month.
Before the middle of November, when he stated that the Treasury would buy a bitcoin every day, President Nayib Bukele made a series of purchases of approximately 2,380 bitcoin via Twitter.
The government holds nearly 2,470 coins worth approximately $106.4 million if those purchases were made. That investment is currently worth $52.2 million, representing a paper loss of more than 50%.
Since the government does not officially disclose purchases, holdings, or the location of the coins, the figures are estimates from Reuters.
The International Monetary Fund stated, “Greater transparency over the government’s bitcoin transactions and the financial situation of the state-owned bitcoin-wallet (Chivo) remains essential.”
El Salvador’s “full recovery” to pre-pandemic levels, “driven by the effective government response to the health crisis,” was highlighted by the IMF.
The IMF predicted that real GDP would expand by 2.4% in 2023, which is higher than the average growth rate over time.
However, the lender was also concerned about the expanding current account deficit and the potential spillover effects of a US recession.
