IMF urges El Salvador to drop bitcoin as legal tender at 'huge threat'

The International Monetary Fund has urged El Salvador to stop its controversial use of bitcoin as legal tender, saying it "poses a huge risk" to the Central American nation's economy.


IMF urges El Salvador to drop bitcoin as legal tender at 'huge threat'


The IMF made the recommendations after holding negotiations with El Salvador - whose government is asking for a $1.3 billion loan to help pay its debts.

The IMF said El Salvador – which in September became the first country in the world to adopt bitcoin as legal tender alongside the US dollar – was on an “unsustainable path.”

The IMF's executive board said El Salvador's bitcoin embrace poses new risks to the country's "financial stability, financial integrity, and consumer protections, as well as related fiscal contingent liabilities."

If current policies take effect, the country's economy will be saddled with a public debt of 96% of GDP by 2026, according to the world body.

El Salvador President Nayib Bukele has been oral in touting crypto on social media. Last Friday, 40-year-old Bukele posted a message on Twitter announcing that his government was buying 410 bitcoins for $15 million. The president boasted that he managed to buy the currency “very cheaply” – especially after the crypto market took a hit last week.

Bitcoin is down about 50% from its record high in November. On Tuesday morning, it recovered somewhat. The value of one bitcoin rose more than 3% to $38,230.20.

Bukele reacted to the sharp decline by posting a photo meme showing him in a McDonald's employee uniform - part of an internet joke in which crypto holders discuss their future careers if the value of the currency drops.

El Salvador's digital currency portfolio is said to total further than bitcoins — or$ 57 million. Bukele has defended the decision to borrow bitcoin as a necessary tool to help integrate 70 of the country's population into the fiscal system.

The adoption of bitcoin in El Salvador coincided with the launch of its virtual wallet, Chivo, which offers fee-free transactions. Chivo also makes it easier for Salvadorans to receive remittances from their citizens living and working abroad.

But many Salvadorans have reported instances of identity theft in which hackers used personal data to break into other people's electronic wallets and claim free $30 worth of bitcoins offered by the government.

In its statement on Tuesday, the IMF blessed Chivo as a conception that could" enhance fiscal addition"although it added that the government demanded to put "strict regulation and oversight."

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