The International Monetary Fund is back on the subject of Bitcoin (BTC) in El Salvador. The Washington-based institution reacted to the desire of Salvadoran President Nayib Bukele to create a “Bitcoin city” in his country. It considered that El Salvador should not use BTC as a legal tender because of its volatility and the risks it presents. A position that the IMF had already adopted a few weeks ago.
IMF still critical of El Salvador’s adoption of Bitcoin (BTC)
The adoption of Bitcoin as a legal tender by El Salvador has been the subject of much curiosity since last September. Its use is slowly growing in the country: major retailers now accept BTC as a means of payment and President Nayib Bukele has announced that more than one million Salvadorans will use Bitcoin.
The opinion of the major financial institutions is a little less enthusiastic. Last June, shortly after the parliament voted in favour of the Bitcoin law, the IMF expressed its fears. Barely a month later, the same institution again opposed the adoption of a crypto-currency as a legal tender, saying that “it goes too far”.
Given the relative success of the Bitcoin project in El Salvador and the rise in prices, the Washington-based financial institution had not returned to the subject since the summer. But Nayib Bukele was not to be counted on to stop there. His Bitcoin city project has woken up the IMF, which is once again not soft on El Salvador
When you don’t need the IMF or World Bank anymore Bitcoin Bonds Baby!!! pic.twitter.com/1G5VkKBWf3
– Bitcoin Archive (@BTC_Archive) November 22, 2021
The reasons why the IMF is against the adoption of Bitcoin (BTC) as a currency
The difference with previous times is that the IMF’s response this time is part of a comprehensive study of El Salvador’s economic situation. Among other things, the institution discusses the economic consequences of the COVID-19 pandemic, the rapid recovery of the Salvadoran economy and the outlook for the future.
Bitcoin and the national wallet, the Chivo, are discussed in some detail. While the IMF’s conclusions are somewhat less trivial than previous ones, the opposition remains in principle.
Firstly, there is (finally) a positive point: the Washington institution admits that cryptocurrencies and Chivo can make payments more efficient, thus enabling greater financial inclusion and ultimately supporting growth.
This is key, as it is the first time that the IMF believes that cryptocurrencies can have a role in financial inclusion, which it has been promoting for several years.
Secondly, the IMF believes that BTC cannot be used as legal tender. The reasons given remain the same: high volatility, risks for the user, lack of efficient safeguards of the Chivo or non-compliance with money laundering and anti-terrorist financing legislation.
Thus, the IMF remains strongly opposed to BTC and cryptocurrencies in general when they become legal tender. On the other hand, the underlying technology is recognised as interesting and efficient.
IMF: Given Bitcoin‘s high price volatility, its use as a legal tender entails significant risks to consumer protection, financial integrity, financial stability and also gives rise to fiscal contingent liabilities. “Because of those risks, it shouldn’t be used as a legal tender” https://t.co/eUpaCRDLsq
– Santiago Pérez (@PerezEnMexico) November 23, 2021
IMF position as a way to promote CBMs against Bitcoin (BTC)
While most commentators have only noted the IMF’s opposition in principle, it is nonetheless essential to note this small reversal on “crypto technology” on the part of the financial institution.
Behind the diplomatic term “crypto technology” are actually cryptocurrencies. However, the IMF implicitly admits that they are more efficient than the current payment system. This can be seen as a way of supporting Central Bank Digital Currencies (CBDC) projects.
It is known that these projects use a large part of the technology resulting from cryptocurrencies, both by centralising the entire monetary issue. A way of saying that the IMF supports a centralized Bitcoin in the hands of central banks.
