The IMF has warned the Central American country on the enormous risks associated with its use of Bitcoin on its Economic stability and integrity.
The International Monetary Fund (IMF) has released a statement urging El Salvador to discard Bitcoin as a legal tender. After an extensive period of consultations, the financial monitoring body urged the central American country to narrow the scope of its Bitcoin law.
The IMF stressed the potential risk associated with the use of the foremost cryptocurrency on the country’s economy. It further commended El Salvador’s quick response to the Covid-19 pandemic, which ensured a fast economic recovery. On the potential risks of Bitcoins’s continued use, the report said,
“Since September 2021, the government has adopted Bitcoin as legal tender. The adoption of a cryptocurrency as legal tender, however, entails large risks for financial and market integrity, financial stability, and consumer protection. It also can create contingent liabilities.”
El Salvador became the first country to adopt Bitcoin as a legal tender in 2021. Since then, its president Nayib Bukele, a vocal Bitcoin proponent, has continued to adopt policies backed by the digital asset. In his prediction for 2022, he believes more countries will follow his country’s lead and adopt crypto as a legal tender.
El Salvador’s Bitcoin Experiment
Since adopting Bitcoin as a legal Tender, El Salvador has continued to experiment with the digital asset. President Bukele has also hinged the success of his tenure and political fate on the successful outcome of this endeavour.
Just last week, Bukele announced that El Salvador had bought the dip, adding $15 million worth of Bitcoin to the country’s balance sheet. Bitcoin ATM wallets have also been established, while a government-backed wallet, Chivo, was created for Salvadorans. The IMF has commended this for promoting financial inclusivity.
However, the country’s plan to build a Bitcoin city with $1 billion gotten through the issuance of Bitcoin bonds has further raised concerns. This apprehension, according to reports, may be why the IMF has refused to sanction the $1.3 billion loan El Salvador sought in 2021.
According to the IMF, current practices will cause public debt to reach 96% of GDP by 2026, putting the country on an “unsustainable path.” This, in addition to the US federal reserves hiking interest rates in the face of rising inflation, does not bode well for El Salvador—a developing economy.
With other emerging countries seemingly turning to digital currencies as a means to protect themselves, El Salvador may not heed the IMF’s warning. It is, however, an interesting situation that many crypto observers will be watching if we go by Anthony Pompliano’s tweet.
IMF Warning Bullish For Bitcoin
Other crypto observers think that the IMF’s warning is bullish for Bitcoin, especially as it is concerned that more countries will follow El Salvador’s lead. Will Clemente, a famous analyst, shared this sentiment on Twitter.
Similarly, investor sentiments have begun to flip following the Federal Reserve postponing its rate hike. A new poll by data aggregator, Santiment, shows that market participants expect bitcoin’s price to rise in the coming days.
This is against the backdrop of an earlier poll where many believed that Bitcoins price would fall below $30,000 within a week. However, this bearish outlook is substantiated by critical data released by Glassnode following the crypto market capitulation.
The report shows enormous realized losses, a severe dropdown, a return to HODLer-led accumulation, with top buyers recouping their losses. This paints a bearish picture for Bitcoin, as its price continues to range between $38,000 and $33,000. Investors may have to wait a while for their bullish sentiments to bear fruits in BTC’s price action.
Kingsley is a fintech writer with over 4 years of experience covering blockchain and cryptocurrency news. Alo first discovered Bitcoin in 2016 and has been passionate about it ever since, particularly the various ways blockchain can help Africa and the world at large. He desires to give the crypto space a more geographically balanced narrative and serve as a bridge between Africa and the rest of the world. His articles have been featured in Cointelegraph, Beincrypto, and Forkast.news, among others.
