The IMF said the adoption of cryptocurrency as legal tender “entails large risks for financial and market integrity, financial stability, and consumer protection”.
“It also can create contingent liabilities,” warned the global agency, in a statement released after their yearly conference.
Under president Nayib Bukele, the Central American country became the first in the world to adopt bitcoin as legal tender in September 2021, alongside the US dollar. The law called for all businesses with the technological ability to accept bitcoin as payment, and promoted the use of the country’s official digital wallet “Chivo”.
The IMF’s directors agreed on the importance of boosting financial inclusion, and noted that “digital means of payment - such as the Chivo e-wallet - could play this role.”
But the agency also “emphasised the need for strict regulation and oversight of the new ecosystem of Chivo and bitcoin”.
As well as asking the authorities to remove bitcoin’s legal tender status, some directors “also expressed concern over the risks associated with issuing bitcoin-backed bonds”.
In response, Salvadoran finance minister Alejandro Zelaya noted the IMF‘s agreement that boosting financial inclusion was important and that an e-wallet could help. Writing on Twitter, he said the IMF’s position appeared to be that bitcoin “appears to work for financial inclusion, but you mustn’t do it”.
“The future waits for no one. #Bitcoin,” he said.
According to Reuters, El Salvador is preparing the issuance of $1 billion in bonds, half of which will be used to purchase bitcoin.
The note of caution from the IMF came as it commended Mr Bukele’s government on its management of the Covid-19 pandemic. They did however urge the authorities to address the “fiscal vulnerabilities stemming from the large public debt stock to GDP ratio”, which has grown during the pandemic.
The IMF also warned that under current policies, “public debt is expected to rise to about 96 per cent of GDP in 2026” and called it an “unsustainable path”.
Additional reporting by agencies