IMF urges El Salvador to drop Bitcoin as legal tender

The International Monetary Fund has urged El Salvador to drop Bitcoin as legal tender.The IMF on Friday said that El Salvador should dissolve the USD 150 million trust fund it created when it made the cryptocurrency Bitcoin legal tender and return any of those unused funds to its treasury. The IMF also recommended eliminating the offer of USD 30 as an incentive for people to start using the digital wallet Chivo and increasing regulation of the digital wallet to protect consumers. It suggested there could be benefits to the use of Chivo, but only using dollars, not Bitcoin. In the near-term the actual costs of implementing Chivo and operationalising the Bitcoin law exceed potential benefits, the report said.

The IMF expressed concern over El Salvador's growing exposure to Bitcoin's volatility and urged greater transparency. Government officials told the IMF that the launch of Chivo had significantly increased financial inclusion, drawing millions of people who previously lacked bank accounts into the financial system. They also spoke of the parallel tourism promotion targeting Bitcoin enthusiasts. The government did not see a need to scale back the scope of its Bitcoin law, but agreed regulation could be strengthened, according to the report. El Salvador's Legislative Assembly made the country the first to adopt Bitcoin as legal tender alongside the US dollar in June and the Bitcoin law went into effect in September last year. What we emphasize in the report is that having a digital wallet, that allows people to make digital means of payment and keep their savings there, especially in US dollars, can bring benefits to the economy as well as to growth but again, I'm emphasizing US dollar because Bitcoin have has bitcoin price is volatile, Alina Carare, head of the IMF's mission in El Salvador, said on Friday. After nearly doubling in value late last year, Bitcoin has plunged. El Salvador and the IMF have been negotiating USD 1.3 billion in lending for months. Carare did not say if the possible loan would be held back if El Salvador continued using Bitcoin as legal tender.