June 1, 2023


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El Salvador’s ‘limited’ use of Bitcoin prevents forecasted risks, says IMF

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El Salvador has recently received a warning from the International Monetary Fund (IMF) regarding the expansion of the government’s exposure to Bitcoin (BTC) due to its speculative nature.

In a recent statement, the IMF emphasized that the risks associated with Bitcoin have not yet materialized for El Salvador due to the country’s limited use of the cryptocurrency.

However, the IMF advised El Salvador to take note of the potential risks that Bitcoin poses to the country’s fiscal sustainability, consumer protection, financial integrity, and stability.

Given that Bitcoin has been recognized as legal tender in El Salvador since September 2021, the use of the cryptocurrency in the country could potentially increase.

In light of these potential risks, the IMF urged El Salvador to reconsider its decision to issue tokenized bonds. The statement from the IMF emphasized the importance of avoiding these types of investments due to their legal and financial risks.

“Given the legal risks, fiscal fragility and largely speculative nature of crypto markets, the authorities should reconsider their plans to expand government exposures to Bitcoin, including by issuing tokenized bonds.”

The El Salvadoran government is facing calls for increased transparency surrounding its Bitcoin transactions and the financial state of its Chivo wallet, a state-owned Bitcoin wallet.

This comes in the wake of the recent creation of the “Volcano bond”, a legal framework for a Bitcoin-backed bond in the country was established on Jan. 11

The bonds are expected to be utilized for paying down sovereign debt and financing the construction of the proposed “Bitcoin City”.

The development of this city is part of the El Salvadoran government’s plan to continue attracting cryptocurrency investors. In 2023, the country has made it a priority to address any potential criminal activity related to cryptocurrencies.

To tackle the demand for transparency, the National Bitcoin Office in El Salvador has been established to act as the central authority for managing these matters, according to Guillermo Contreras, CEO of DitoBanx. In an interview with Cointelegraph on January 6th, Contreras emphasized the importance of the National Bitcoin Office in maintaining the transparency and security of the country’s Bitcoin dealings.

This new establishment is expected to play a vital role in ensuring the credibility and reliability of El Salvador’s Bitcoin operations.

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