El Salvador’s embrace of Bitcoin didn’t realize any foreseeable risks at first. However, more transparency and attention is still needed, according to a statement from the International Monetary Fund following a visit to the country on February 3rd. 10.
“While the risks have not materialized due to the limited use of bitcoin to date — as suggested by survey data and remittances — its use could grow given the state of the legal tender and new legislative reforms to encourage the use of crypto assets, including the Token Bonds (Digital Assets Act) […]
More transparency about government transactions in Bitcoin and the financial condition of the state-owned Bitcoin Wallet (Chivo) remains essential, particularly for assessing underlying financial contingencies and counterparty risks.”
The IMF statement came after a $600 million bond payment by El Salvador last month, which pre-empted the IMF’s “Article IV” visit to the country, which took place between Jan. 30 – Feb. 8.
This visit was the third by IMG since El Salvador’s decision to launch a legal tender for Bitcoin in September 2021. A decision that was believed to have officially closed the doors to more IMF funding, the IMF emphasized after its recent visit to the country that while it is not consistent with El Salvador’s adoption For bitcoin as legal tender, some major risks have been avoided so far.
However, he warned that while some of the initial risks related to El Salvador’s adoption of bitcoin have not materialized, it would be unwise for the Latin American country to continue pursuing its own monetary policy, despite lacking a currency of its own (previously, it had Only rely on the US dollar as legal tender).
“Financing Bitcoin purchases by issuing tokenized securities should be avoided due to the financial risks[…] The use of proceeds by the management of the new Bitcoin Fund must follow normal spending controls and good governance practices.”
All this comes later The Congress of El Salvador passed a law regulating the issuance of digital assets by government and private entities, which was passed on January 3. 11. The law allows the country to sell bitcoin-backed government bonds, a policy the IMF warns against.
Moreover, El Salvador plans to use these bonds to build a “Bitcoin City” connected to a local volcano, and Bukele’s grand vision is to use the volcano’s energy for clean Bitcoin mining.
However, since the announcement that his country will accept cryptocurrency as legal tender and make an initial purchase of several hundred bitcoins on September 4th. In 2021, the country’s total bitcoin holdings are down 57% from their peak value.
Despite these concerns, the International Monetary Fund praised El Salvador’s economy in its February 5th report. 10 report a “full recovery” to pre-pandemic levels. The International Monetary Fund expects the country’s real GDP to grow by 2.4 percent in 2023, above the historical average.