El Salvador’s Utility Of Bitcoin Could Lead To Risks

El Salvador

IMF, the global monetary sentry, has recently advised the nation of El Salvador to exercise some form of caution as they are trying to expand the exposure to Bitcoin on a governmental level- simply due to the speculative and volatile nature of the crypto markets.

A statement from the IMF made on the 10th of February has also emphasized on the risks that Bitcoin poses to the country which have not been materialized yet due to the limited utility of the cryptocurrency in the country- which was discovered after the staff from the IMF visited this country. The watchdog also stated that the country should immediately address the risk that this cryptocurrency poses to the fiscal sustainability, as well as the consumer protection, of this country- coupled with stability and financial integrity. 

El Salvador Could Be moving Towards Financial Chaos

The IMF also spoke about acknowledging these risks as the use of Bitcoin in El Salvador could grow exponentially- considering it has already been accepted as the legal tender in the country since September 2021. The country has been urged to rethink this decision considerable times, as the IMF stated that it should be eschewed due to the financial and legal risks.

The statement claimed that with the legal risks associated with the cryptocurrency, along with the fiscal fragility and the speculative nature of the cryptocurrency, the authorities should reconsider their decision to expand the governmental exposure to the cryptocurrency- which would also include issuing tokenized bonds. 

The statement from the IMF comes after a legal framework called the Volcano bond was established in El Salvador on the 11th of January. The government in the country stated that these bonds would be utilized in paying down the sovereign debt- whilst funding the construction of the Bitcoin City.