IMF warns El Salvador about bitcoin risks

El Salvador should not adopt bitcoin as its official currency given the risks associated with this cryptocurrency, the International Monetary Fund said on Monday in a document on this small Central American country. This IMF post comes the day after Salvadoran President Nayib Bukele announced his desire to build “Bitcoin City,” a new city powered by the energy of a volcano and financed by cryptocurrency debt.

The Washington-based body also highlighted the efforts made by the Salvadoran government to develop financial inclusion and economic growth through the use of digital technologies. But “given the high volatility of bitcoin” its use as an official currency “generates significant risks for consumer protection, for the integrity of the financial system and for financial stability.” Furthermore, the IMF warned, “the use (of bitcoin) can also have budgetary consequences.”

Read also: Bitcoin becomes the official currency of El Salvador

A “risky” adoption, admits the president

“Bitcoin should not be adopted as an official currency,” he said, calling on the Salvadoran authorities to “limit” the scope of the legislation dating from September 7 that made the cryptocurrency the country’s official currency at the same time. the US dollar (which replaced the national currency, the colón, twenty years ago). The international body also requested the Chivo Wallet digital wallet -controlled by the Salvadoran authorities- “to protect all user funds, in dollars and bitcoins, by separating and protecting reserve assets.”

During a conference on bitcoin in Latin America, Nayib Bukele explained on Saturday that the Bitcoin City “will include everything: residential areas, other businesses, services, museums, places of recreation … airports, ports, trains.” And that the Conchagua volcano “will provide the necessary energy for the entire city and will also feed it to mining”, the production of cryptocurrencies, very greedy for electricity.

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Bitcoin falls on the first day as the official currency of El Salvador

According to the IMF, the country’s gross domestic product is expected to grow 10% in 2021 and 3.2% the following year. Nayib Bukele on Twitter described the IMF post as an “interesting” analysis of his country. “Obviously, we do not agree with certain elements, such as the (risky) adoption of bitcoin,” he noted.

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