As El Salvador embraces bitcoin, IMF urges caution
The introduction of bitcoin in El Salvador has been addressed in a statement by the International Monetary Fund (IMF). The IMF thinks transparency and prudence are still required even though dangers related to the country’s adoption of cryptocurrencies have not materialized.
Cryptomarkets Risks
The El Salvadorian government has been urged by the IMF to rethink its intentions to increase public exposure to bitcoin. This is because crypto markets are speculative and subject to legal and financial hazards.
So Far, Bitcoin Has Not Been Used Much
The IMF has emphasized that because bitcoin has not been widely used, the dangers connected with it have not yet shown. The lender does concede that given bitcoin’s status as legal cash and recent legislative changes intended to promote the use of digital assets like tokenized bonds, its use may increase in the future.
executive purchases
President Nayib Bukele announced a series of acquisitions totaling about 2,380 bitcoin in November 2021. If these acquisitions were executed, the government would own roughly 2,470 coins that cost around $106.4 million, according to calculations by Reuters. However, the investment’s current worth is $52.2 million, representing a paper loss of more than 50%.
Transparency is necessary
Greater transparency in government bitcoin transactions and the financial standing of the state-owned bitcoin wallet are both issues that the IMF has emphasized (Chivo).
Recovery of El Salvador’s Economy
Despite its worries, the IMF has also acknowledged that El Salvador’s economy has fully recovered to its pre-pandemic levels. This is as a result of the government’s successful reaction to the health crisis. In 2023, the real GDP is expected to expand by 2.4 percent, which is higher than normal.
Concerns Regarding the US Recession and Current Account Deficit
The IMF has, however, also voiced alarm over a growing current account deficit and the possible knock-on implications of a US recession.