THE International Monetary Fund (IMF) has called on El Salvador to remove bitcoin's legal tender status in the country and has expressed concern over its plan to issue bonds linked to the cryptocurrency as prices for digital coins hit a rough patch, but the call has found mixed support among Salvadorans.
Bitcoin has lost about half its value compared to its record US$67,734 in November, and the cryptocurrency market as a whole has lost more than US$1 trillion in value over that time.
According to a New York Times report, El Salvador has spent about US$85.5 million on bitcoin since adopting the cryptocurrency as legal tender in September, including a US$15-million purchase a few days ago, during the latest dip. The country has paid an average of about US$47,500 per bitcoin, and the current price is about US$37,000, meaning that the Salvadoran investment has lost about 23 per cent of its value.
IMF directors in a release on Tuesday stressed that “there are large risks associated with the use of bitcoin on financial stability, financial integrity, and consumer protection, as well as the associated fiscal contingent liabilities”.
The report, which was published after bilateral talks with El Salvador, went on to “urge” authorities to narrow the scope of its bitcoin law by removing bitcoin's status as legal money.
The IMF report went on to say that some directors had expressed concern over the risks associated with issuing bitcoin-backed bonds, referring to the president's plan to raise US$1 billion via a “bitcoin bond” in partnership with Blockstream, a digital assets infrastructure company.
El Salvador in September 2021 became the world's first country to adopt the cryptocurrency as legal tender, alongside the US dollar, under a plan spearheaded by Nayib Bukele, the country's 40-year-old president and self-styled “CEO”. That meant the digital asset could be used to buy goods, send remittances and even pay taxes in the country.
The move then led to protests in the Central American country. Angry demonstrators then say they fear it would bring instability and inflation to the impoverished country.
But in the aftermath of the IMF calling for the country to ditch the cryptocurrency, which has legal status alongside the US dollar, the reactions were mixed.
“I don't care whether they take it away because I don't benefit from this cryptocurrency. I only work with dollar and I don't accept bitcoin,” a street vendor told the AFP News Agency.
“It would affect us because people already know that we accept bitcoin in the shop. They already know that they can carry their money safely on their phones. That would be a step backwords,” a female shopkeeper expressed. Yet, there were those who had opposing views.
“I disagree with abolishing the bitcoin law because we would not be looking at the future of our economy,” Salvadoran resident Juan Carlos Perez was quoted by AFP News Agency as saying.
The IMF statement on Tuesday echoed a report from the fund in November in which it wrote that bitcoin's high price volatility translated to significant risks to consumer protection. It called then for bitcoin not to be used as legal tender.
El Salvador has also been trying since early 2021 to secure a US$1.3-billion loan from the IMF — an effort that appears to have soured over this bitcoin row.
The IMF predicts that under current policies, public debt will rise to 96 per cent of GDP by 2026, putting the country on “an unsustainable path”.