Risks Of El Salvador’s Bitcoin Not Materialized But Caution Is Warranted, Says IMF

Key Points:

• The IMF stated after an annual inspection that the risks of El Salvador’s bitcoin adoption had not materialized, although cautiousness is advised.
• The banking agency encouraged the Central American country to reconsider its ambitions to promote cryptocurrency usage.
• Though its BTC investments have yet to pay off, El Salvador’s economy has recovered to pre-pandemic levels.

The International Monetary Fund stated that the risks associated with El Salvador’s bitcoin adoption had not materialized, mainly owing to its limited use, but prudence is advised.

The statements follow the United Nations’ financial agency’s yearly visit to El Salvador, which followed the Central American country’s $600 million bond payment last month.

Given the legal risks, fiscal fragility and largely speculative nature of crypto markets, the authorities should reconsider their plans to expand government exposures to Bitcoin, including by issuing tokenized bonds. The use of proceeds by the new Bitcoin Fund Management should follow regular expenditure controls and good governance practices. The guarantees given by new Digital Asset Law should be equivalent to those from traditional securities regulations.

the IMF said in a statement on Friday

El Salvador made BTC official tender in September 2021, much to the anger of the IMF, and its president, Nayib Bukele, has been a strong BTC proponent on Twitter. Still, his optimism has not precisely paid off, with paper losses on the country’s bitcoin investments currently estimated to be at least 50%.

Additionally, Exact investment statistics are unknown due to El Salvador’s opaque purchases and ownership.

Greater transparency over the government’s transactions in Bitcoin and the financial situation of the state-owned Bitcoin-wallet ( Chivo) remains essential, especially to assess the underlying fiscal contingencies and counterparty risks.

the IMF said

Though its bitcoin investments have yet to pay off, El Salvador’s economy has recovered to pre-pandemic levels, according to the IMF, thanks to a strong government response to the health catastrophe.

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