Soon after El Salvador’s President Nayib Bukele announced plans for the world’s first Bitcoin city, powered by a volcano and financed by cryptocurrency bonds, the International Monetary Fund (IMF) has recommended that the country stop using Bitcoin as legal tender, citing financial and consumer risks associated with the cryptocurrency.
El Salvador, which has relied on the US dollar as its principal currency for more than two decades, legalized Bitcoin as official money in September and has profited from the change.
The IMF noted in a statement that Bitcoin and cryptocurrencies, in general, might help with efficient payments, but that making them legal money would likely jeopardize financial stability. “Because of Bitcoin’s tremendous price volatility, it poses major threats to consumer protection, financial integrity, and financial stability if it is used as legal money.
Bitcoin should not be utilized as a legal tender because of these hazards. The staff proposes restricting the scope of the bitcoin law and bolstering the new payment ecosystem’s regulation and oversight “In a statement, the IMF added.
According to the international body, El Salvador’s Bitcoin law should be restricted, and the new payment ecosystem’s regulation and control should be enhanced.
President Nayib Bukele of El Salvador revealed over the weekend that the Central American country aims to establish the world’s first “Bitcoin City,” which will be funded initially by Bitcoin-backed bonds.
Advertisements from Bukele claimed the city planned in the eastern district of La Union would obtain geothermal electricity from a volcano and would not collect any taxes other than the value-added tax during an event that wrapped up a week-long promotion of Bitcoin in El Salvador (VAT).
Before requesting IMF funding, the IMF frequently sends Article IV missions to member nations to confer with government leaders. “The intentions to issue sovereign bonds and use the proceeds to acquire Bitcoin and fund infrastructure initiatives revealed on November 20 took place after the mission’s technical work was completed, and were not discussed with the authorities,” the IMF confirmed.
This isn’t the first time the IMF has issued a warning to the Latin American country for adopting Bitcoin. When El Salvador approved its historic Bitcoin Law earlier this year, the IMF had an anticipated reaction of criticizing its chances.
El Salvador has moved on with its proposal despite many warnings about the perils of a Bitcoin-based financial system. To enable everyday transactions and remittance transfers in Bitcoin, the country has introduced its Chivo Wallet app, which is powered by Bitcoin, as well as several ATMs.