The International Monetary Fund (IMF) believes El Salvador’s adoption of Bitcoin as legal tender may bring about a series of risks and regulatory challenges. Gerry Rice, a spokesperson for the IMF said, “Adoption of Bitcoin as legal tender raises a number of macroeconomic, financial and legal issues that require very careful analysis so we are following developments closely and will continue our consultation with authorities.”
Rice added, “Crypto assets can pose significant risks and effective regulatory measures are very important when dealing with them.”
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He also mentioned that an IMF team is conducting virtual meetings with El Salvador on its Article IV review of the country and a potential credit program “including policies to strengthen economic governance.” The team will meet with the President of El Salvador, Nayib Bukele today.
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Backstory
The President of El Salvador brought up a proposal to the country’s congress to make Bitcoin legal tender. He pointed out that Bitcoin as legal tender was his solution to the foreign remittance problems in the small nation, 70% of whose population is unbanked.
El Salvador’s Congress approved a law this week requiring businesses to accept Bitcoin in exchange for goods and services. President Nayib Bukele said the digital currency will help counter El Salvador’s low banking penetration and cut the cost of sending remittances.
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El Salvador’s bonds are the worst performers in emerging markets this week, according to a Bloomberg Barclays index. The yield on its bonds due in 2025 is up 71 basis points to 7.8% as of the time of writing this report.
Siobhan Morden, head of Latin America Fixed Income Strategy at Amherst Pierpont had this to say about El Salvador’s direction, “The plans for Bitcoin under an increasingly autocratic regime will likely only compound concerns about corruption, money laundering and the independence of regulatory agencies.”
Bitcoin is up 1.50%, trading at $36,900 for the day, as of the time of writing this report.
