IMF Nags El Salvador to Redefine Bitcoin Laws and Oversight

The International Monetary Fund (IMF), a global financial institution aimed at promoting financial economic stability and growth, has called for El Salvador

The International Monetary Fund (IMF) has once again urged El Salvador to reconsider its Bitcoin laws and regulatory framework.

Since 2021, the institution has been consistently advising El Salvador to modify its Bitcoin laws. While the IMF supports the country's efforts to bolster its economy through reforms, they remain concerned about the risks associated with El Salvador's adoption of Bitcoin as legal tender.

The IMF has advised the country to limit its public sector exposure to Bitcoin and strengthen its regulatory framework to mitigate potential risks.

“What we have recommended is a narrowing of the scope of the Bitcoin law, strengthening the regulatory framework and oversight of the Bitcoin ecosystem, and limiting public sector exposure to Bitcoin,” stated IMF spokesperson Julie Kozack during a recent press conference.

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This is not the first time the IMF has highlighted the need for enhanced Bitcoin law oversight in El Salvador. Since the country declared Bitcoin as legal tender in 2021, making it the first nation to do so, the institution has repeatedly called for the country to adjust its Bitcoin regulations.

In a report released earlier this year, the IMF noted Bitcoin's increasing role in the global financial system, particularly as a tool for preserving wealth in regions facing economic instability.

However, despite acknowledging Bitcoin's utility, the IMF maintains a cautious stance regarding its broader implications. The organization emphasizes that cryptocurrencies should not be granted official currency or legal tender status, as this could undermine monetary sovereignty and stability.

The IMF's latest statements follow President Bukele's state visit, during which he met with Argentina's Vice President Villarruel. Villarruel reportedly expressed interest in El Salvador's Bitcoin adoption and volcanic mining projects.

Bitcoin is increasingly being used for cross-border transactions by residents in countries with restrictive financial regulations. Among the nations at the forefront of this trend are Argentina and Venezuela, whose citizens are turning to cryptocurrencies as a way to achieve financial freedom amid hyperinflation and stringent regulations.

Under the leadership of President Nayib Bukele, a Bitcoin advocate, El Salvador continues to ramp up its exposure to the flagship cryptocurrency.

According to Arkham Intelligence, the country's Bitcoin holdings have surpassed 5,800 BTC, valued at around $359 million, since President Bukele's public announcement that El Salvador would be buying one BTC per day. Despite fluctuations in the market and the price of Bitcoin, the daily purchase initiative has been maintained.

El Salvador has also promoted Bitcoin mining using geothermal energy harnessed from the country's volcanoes. The country believes this approach can minimize the environmental impact typically associated with cryptocurrency mining. As of May 2024, El Salvador had mined approximately 473.5 BTC.

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El Salvador's diverse experiments with Bitcoin, while showcasing a bold attempt at financial innovation, have faced challenges when it comes to public acceptance and practical implementation.

Critics have highlighted Bitcoin's price volatility as a major risk to economic stability. By October this year, El Salvador's investments in Bitcoin had lost around $50 million due to fluctuating prices.

Surveys have also indicated that many Salvadorans are either unaware of Bitcoin or disapprove of its adoption. Around 68% of citizens disagreed with making Bitcoin legal tender, suggesting that the government's Bitcoin strategy lacks widespread public acceptance.

On the business front, despite the law mandating acceptance of Bitcoin, only about 20% of businesses complied. Technological barriers such as internet access and digital literacy have limited broader adoption among the population. Many Salvadorans still prefer cash transactions due to trust issues and concerns about the complexity of using cryptocurrencies.

In an effort to address the ongoing issues, El Salvador has initiated educational programs about cryptocurrencies. In August this year, the Bitcoin Office of El Salvador unveiled a plan to send 80,000 civil servants to Bitcoin courses to improve digital literacy.

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