El Salvador’s ‘limited’ use of Bitcoin prevents forecasted risks, says IMF

El Salvador has been advised by the global financial watchdog to exercise caution when extending government exposure to bitcoin (BTC) due to the “speculative nature” of cryptocurrency markets.

February 10 statement from the International Monetary Fund (IMF) stressed that the risks of Bitcoin in El Salvador “have not yet materialized” due to its “limited” use so far, after IMF staff visited the country last week.

It has been suggested that El Salvador eliminate the risk of Bitcoin to the country’s financial integrity and stability, financial soundness and consumer protection, noting that Bitcoin usage “could grow” given that it has been recognized as legal tender in the country since September 2021.

El Salvador has been urged to reconsider its decision to issue tokenized bonds as the IMF said the idea should be “dropped” due to its legal and financial risks. The statement noted:

“Given legal risks, fiscal volatility, and the largely speculative nature of cryptocurrency markets, the authorities should reconsider their plans to expand government exposure to bitcoin, including by issuing tokenized bonds.”

The IMF also stressed the importance of “greater transparency” on the part of the El Salvadoran government regarding both its bitcoin transactions and the “financial position” of its state-owned bitcoin wallet, the Chivo wallet.

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This comes after recent news that the legal framework for Bitcoin-backed bonds in El Salvador, known as “Volcano Bonds,” was set up on January 11th.

The El Salvadorian government said the bonds would be used to pay off sovereign debt and finance the construction of its proposed “Bitcoin City”.

Bitcoin City is part of El Salvador’s plan to further attract crypto investors, with the country previously noted as a priority in 2023 to crack down on any possible cryptocurrency-related criminal activity.

Guillermo Contreras, CEO of DitoBanx, previously told Cryptooshala on January 6 that the opening of the National Bitcoin Office in El Salvador would function as a “central institution” to address these issues.

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