IMF Asks El Salvador to Address Bitcoin Risks

IMF Asks El Salvador to Address Bitcoin Risks

Risks over El Salvador’s embrace of bitcoin “have not materialized,” but use of the cryptocurrency still requires transparency and attention, the International Monetary Fund (IMF) said Friday in a statement after a visit to the Central American country.

“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,” the IMF said in a statement.

The IMF’s so-called “article IV” visit has been sharply critical in the past. El Salvador’s move to make bitcoin legal tender in September 2021 effectively closed the doors to IMF financing.

While the lender noted that risks “have not materialized due to the limited bitcoin use so far,” it said 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.”

President Nayib Bukele announced on Twitter a series of purchases of some 2,380 bitcoin before mid November, when he said the Treasury would buy a bitcoin every day.

If those purchases were made, the government holds nearly 2,470 coins acquired for about $106.4 million. The current value of that investment is $52.2 million, for a paper loss over 50%.

“Greater transparency over the government’s transactions in bitcoin and the financial situation of the state-owned bitcoin-wallet (Chivo) remains essential,” the IMF said.

The IMF highlighted the “full recovery” of El Salvador’s economy to pre-pandemic levels, “driven by the effective government response to the health crisis.”

Real GDP is projected to grow by 2.4 percent in 2023, the IMF said, above the historical average. However, the lender also expressed concern over a rising current account deficit and the possible spillover effects of a recession in the United States.# IMF Asks El Salvador to Address Bitcoin Risks

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