The IMF Is Urging El Salvador To Ditch Bitcoin As Legal Tender

The IMF has urged El Salvador to stop using bitcoin as legal tender and expressed concern over the country’s plan to issue bitcoin-linked bonds as digital coin prices have dropped.

El Salvador became the first government in the world to declare bitcoin legal tender in September, thanks to a programme spearheaded by the country’s president, Nayib Bukele. As a result, the digital asset might be used to buy products, send money overseas, and even pay taxes in the country. Executive directors of the IMF, from whom El Salvador is seeking more than $1 billion in loans, expressed concern over the decision in a statement released on Tuesday.

“[The directors] stressed that there are large risks associated with the use of bitcoin on financial stability, financial integrity and consumer protection, as well as the associated fiscal contingent liabilities,” the statement said.

Bukele has recently spent tens of millions of dollars of public funds on bitcoin purchases and has lost money. Despite knowing that the price of the digital currency had decreased, he raised his bets last week.

El Salvador’s talks with the IMF have stalled, and fears over the government’s financing plan have weighed on the country’s bonds, which were among the worst performers in emerging markets last year.

Under Bukele, El Salvador’s relations with the United States have worsened. After declaring that the Salvadoran government had “no interest” in mending relations, Washington’s acting chargé d’affaires left the country.

Bukele has indicated that he plans to build a volcano-powered, low-tax “bitcoin city,” which would be financed partly by a $1 billion issuance of sovereign bonds backed by bitcoin.

“Although ‘first mover’ status on innovative financial products suggests initial investor demand, it’s not clear that this structure would attract sufficient demand as a recurrent source of liquidity,” Siobhan Morden of Amherst Pierpoint Securities said.

Moreover, Bukele’s Twitter profile photo was updated on Monday, showing him rocking a McDonald’s hat and shirt, a reference that has garnered traction among meme-savvy bitcoin enthusiasts.

He also recommended McDonald’s employees to take advantage of the recent drop in bitcoin’s price to buy rather than sell and to set aside a percentage of their wages to invest in bitcoin.

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