BEFORE YOU GO...
Check how Shufti Pro can verify your customers within secondsRequest Demo
The IMF has urged El Salvador to address the risk associated with the adoption of bitcoin as a legal currency.
El Salvador is the only country to adopt Bitcoin as a legal currency and the IMF (International Monetary Fund) has warned the nation against the risks involved in expanding its reliance on cryptocurrency. The authority also demands the country to address the concerns regarding Bitcoin adoption as a legal tender.
The warning came in a report that followed an experts’ mission to a Central American nation. It discovered that Salvadoran growth had been “robust” last year but those vulnerabilities, such as linkage to bitcoin, remained. The country adopted BTC as the legal currency alongside the US Dollar in September 2021.
Nayib Bukele, the President of El Salvador, who is referred to as “Tech-Savvy” by many news agencies, has advocated the move. According to the president, adopting BTC will bring more Salvadorans, many of them lacking bank accounts, into the formal economy.
The change in the currency means that every business in the country, even the neighbouring shops, needs to accept cryptocurrency as the legal medium of payment. But the IMF and the World Bank warned that implementing this will leave the nation more vulnerable to money laundering and other illicit activity that could directly impact the underlying stability.
“While risks have not materialised due to the limited bitcoin use so far,” the report mentioned, its use could grow due partly to “new legislative reforms to encourage the use of crypto assets.”
In this context, it added, “underlying risks to financial integrity and stability, fiscal sustainability, and consumer protection persist.”
The IMF experts said it was “essential” that Salvadoran authorities provide “greater transparency over the government’s transactions in bitcoin and the financial situation of the state-owned bitcoin wallet” known as Chivo.
According to the report, in 2022, the Salvadoran economy grew by 2.8% due to the compelling government response to the COVID-19 pandemic, “the unprecedented reduction in crime, and strong remittances and tourism revenues.”