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BusinessEl Salvador

IMF warns El Salvador of Bitcoin 'risks'

February 11, 2023

The Central American country became the first worldwide to adopt Bitcoin as a legal currency in 2021. The IMF said the government should be more transparent.

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Protestors hold placards against the Bitcoin law during a protest the government of Nayib Bukele and his policies
El Salvador has seen protests against the cryptocurrency, and against Bukele's policiesImage: Camilo Freedman/SOPA Images via ZUMA Press/picture alliance

The International Monetary Fund has urged the government of El Salvador to exercise greater transparency with its Bitcoin transactions, highlighting the cryptocurrency's "risks."

In September 2021, El Salvador became the first country worldwide to introduce Bitcoin as a legal tender alongside the US dollar. El Salvador's Congress passed a law last month to regulate the issuance of other digital assets by the state and private entities.

In a report on Friday, the IMF once again warned the government regarding Bitcoin following a visit to the country.

"While risks have not materialized due to the limited bitcoin use so far," the IMF report said, the use of the cryptocurrency could grow, given new legislative reforms adopted to encourage its use.

The IMF noted that "underlying risks to financial integrity and stability, fiscal sustainability, and consumer protection persist."

How has El Salvador embraced Bitcoin?

President Nayib Bukele, reputed to be a tech enthusiast, is attempting to get more of the country's residents to use traceable ways of exchanging goods and money. Many Salvadorians do not have bank accounts.

The country rolled out a digital wallet, called Chivo, in September 2021, parallel to adopting Bitcoin as a legal currency. Many Salvadorans have since protested against the move and Bukele's policies in general.

Bukele then announced last November that the country's treasury would start buying a Bitcoin every day. 

The Reuters news agency has calculated nearly 2,470 coins were acquired by the government for about $106.4 million (€99.4 million) since the announcement. The Salvadoran government doesn't officially disclose purchases, holdings or where the coins are kept.

In its statement, the IMF stressed the importance of "greater transparency over the government's transactions in Bitcoin and the financial situation of the state-owned Bitcoin-wallet (Chivo)."

Despite the warnings, the IMF report applauded the growth of the Salvadoran economy by 2.8% in 2022. It cited the government's effective pandemic response, the "unprecedented" crime reduction and the strong tourism revenues as the reasons.

At the same time, IMF officials warned that Salvadoran exports and remittances could be affected by a pronounced slowdown in the US.

Bitcoin is now legal tender in El Salvador

rmt/dj (AFP, Reuters)