IMF Asks El Salvador to Narrow Scope of Bitcoin Law, Limit Public Exposure
The IMF has been pushing El Salvador to implement changes to its policy for the past three years.
Photo Credit: Facebook/ Nayib Bukele
The IMF backs the idea of creating a comprehensive policy to address the risks of crypto assets
Highlights
- The IMF is concerned about the volatility of crypto assets
- The organisation is helping the FSB to draft regulation
- The IMF is withholding financial aid to El Salvador
The International Monetary Fund (IMF) has reiterated its concerns about El Salvador's extensive engagement with Bitcoin. The topic was addressed by IMF spokesperson Julie Kozack during a press conference on Thursday. The organisation has been consistent in cautioning the country about the risks of crypto activity given the volatile nature of virtual digital assets. At present, the IMF is working with the Financial Stability Board (FSB) to draft a comprehensive framework of regulations that could govern the multiple scenarios related to crypto activities.
According to Kozack, the IMF has urged El Salvador to limit people's exposure to Bitcoin. The organisation has been asking the administration to rein in its crypto policy over the past three years, since it was declared a legal tender alongside the US dollar in El Salvador back in 2021.
“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,” Kozack said in response to a question.
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After legalising the use of Bitcoin in 2021, El Salvador has taken several other steps to make the oldest, most expensive cryptocurrency an integral part of its economy. Salvadoran President Nayib Bukele is a vocal Bitcoin supporter.
From approving crypto businesses to set up operations in the country, Bukele is spearheading the creation of a ‘Bitcoin City' that is projected to become a tax-free haven for miners with access to renewable volcanic energy. The Salvadoran President also approved Bitcoin bonds to allow the country to gather capital to pay debts for the country.
in April, an IMF associate sent a fresh warning to Bukele about the institute being concerned about the financial risks linked to Bitcoin.
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On Friday, Bitcoin was trading at $61,400 (roughly Rs. 51.5 lakh). Last year, when Bitcoin was trading at around $29,449 (roughly Rs. 24.5 lakh), El Salvador recorded an 18 percent drop in BTC-based remittances.
Due to El Salvador's continuous engagement with Bitcoin, the IMF has reportedly withheld financial aid worth $1.4 billion (roughly Rs. 11,754 crore) that El Salvador needs to expedite public debt payments and other financial obligations.
IMF official Tobias Adrian posted outlined the financial body’s concerns with crypto in February.
“The uneven growth of crypto markets across the world means the challenges regulators face are different. At the same time, the capacity of regulators to monitor and respond to risks generated by crypto markets is also different,” he said.