First modification:
The International Monetary Fund (IMF) urged El Salvador on Tuesday to eliminate Bitcoin as legal tender in the country due to the “serious risks” it implies for the market and financial stability. The agency also expressed concern about the issuance of cryptocurrency-backed bonds.
The price of Bitcoin continues in free fall during the first weeks of the year. According to Forbes magazine, its value in the combined cryptocurrency market has dropped by $1.5 billion since last November. El Salvador, a pioneer country in accepting Bitcoin as legal tender, could face a problem if its value continues to drop.
This has been made known this Tuesday by the International Monetary Fund, which has urged the country governed by Nayib Bukele to eliminate this cryptocurrency as legal tender in El Salvador. The organism also requested a strict regulation of the electronic wallet of this type of currency.
“The adoption of a cryptocurrency as legal tender implies serious risks for financial and market integrity, financial stability and consumer protection and may cause contingent fiscal liabilities,” warned the agency, which also expressed concern “about the issuance of bitcoin-backed bonds.”
Risk of increased debt
Recently, Finance Minister Alejandro Zelaya announced that the Central American country would issue bitcoin bonds between February and March. The total issuance of bonds in bitcoin would be valued at 1,000 million dollars. An operation with which they hope to attract the attention of investors and build the so-called “Bitcoin City”, presented by Bukele on November 21.
However, the IMF sees a high risk in the operation. In its statement, the agency warned that with the current levels of debt spending, El Salvador’s public debt could increase to close to 96% of GDP in 2026, a fact that it described as an “unsustainable trajectory.”
The IMF Executive Board also noted that the pandemic has exacerbated “the fiscal vulnerabilities” of the country and require “immediate action.”
“The pandemic interrupted ten years of growth, but El Salvador is recovering quickly. Strong external demand, resilient remittances and strong management of the pandemic – helped by a disbursement under the Rapid Financing Instrument approved in April of 2020 – are supporting a rapid reactivation,” they said.
In addition, they gave a boost to the government led by the controversial Bukele by recognizing his efforts to reduce bureaucracy, the cost of energy, promote investment in infrastructure and social spending, and tackle crime.
Bukele, however, has been harshly criticized for his way of trying to reduce violence in the country. The military presence in the streets has multiplied, negotiations with the gangs have been negotiated despite the fact that Bukele promised not to do so, and human rights associations criticize the treatment of prisoners in jail.
With EFE, Reuters and local media
.