The International Monetary Fund on Monday sent out a warning to El Salvador against using bitcoin as official tender owing to the risks associated with the cryptocurrency. The Washington-based lender cautioned the country a day after it announced plans for the world’s first “Bitcoin City”.
El Salvador has used the US dollar for two decades, and recently in September, it became the first country in the world to legalize bitcoin as legal tender.
The IMF issued a statement following the conclusion of a monitoring mission to the small Central American country saying, “Given Bitcoin’s high price volatility, its use as a legal tender entails significant risks to consumer protection, financial integrity, and financial stability”.
It stated, “Its use also gives rise to fiscal contingent liabilities. Because of those risks, Bitcoin should not be used as a legal tender.”
The global lender thus recommended “narrowing the scope of the Bitcoin law” that had made it the official currency and urged “strengthening the regulation and supervision of the new payment ecosystem.”
The IMF statement has come after President Nayib Bukele said that El Salvador plans to build a “Bitcoin City” powered by a volcano and financed by cryptocurrency bonds.
