Risks over El Salvador’s embrace of Bitcoin ‘have not materialized’

The International Monetary Fund (IMF) has continued questioning the viability of El Salvador’s adoption of Bitcoin (BTC) as a legal tender. 

According to the IMF, the risks associated with El Salvador’s adoption of Bitcoin have yet to materialize following minimal usage of the cryptocurrency, noting that data from surveys and remittance back the concern, the agency said in a blog post on February 10. 

Interestingly, in the post, IMF noted that the declaration of Bitcoin as a legal tender could grow its usage backed by factors such as new legislative reforms. The IMF also emphasized the need for greater transparency over the government’s Bitcoin transactions.

“While risks have not materialized due to the limited Bitcoin use so far—as suggested by survey and remittances data—its use could grow given its legal tender status and new legislative reforms to encourage the use of crypto assets, including tokenized bonds (Digital Assets Law),” the IMF said. 

Additionally, IMF pointed out that risks around financial integrity and stability, fiscal sustainability, and consumer protection still exist. Therefore, the body has called for the government to address the identified concerns based on previous recommendations. 

Concerns over El Salvadro’s Bitcoin adoption

Notably, El Salvador’s move to adopt Bitcoin as a legal tender has been met with both criticism and support from various stakeholders, with concerns raised about the country’s economic stability and financial inclusivity. 

The government hopes the Bitcoin adoption move will lead to greater financial inclusion for its citizens, particularly those lacking access to traditional banking services. In this line, IMF chief Kristalina Georgieva warned that despite digital currency being utilized for services similar to money, they should not be confused for currencies. 

Amid the IMF concerns, an October 2022 report indicated that about 80% of citizens believed the Bitcoin strategy failed. Notably, El Salvador is forging ahead with its Bitcoin adoption by focusing on supporting structures such as setting up mechanisms for mining operations. 

El Salvador’s economy expands 

It is worth noting despite initial predictions of the negative impact on El Salvador’s economy for the Bitcoin decision, the country’s economy expanded by almost 3% in 2022. 

In general, the IMF has been among the biggest crusaders against the adoption of cryptocurrencies by various jurisdictions, citing a string of concerns mainly around transparency. For instance, as reported by Finbold, the agency alleged that the usage of digital assets was prevalent in corrupt countries characterized by tighter capital restrictions.