IMF Tells El Salvador: Costs of Making Bitcoin Legal Tender Exceed Potential Benefits

The International Monetary Fund (IMF) has told El Salvador that the costs of implementing the country’s Bitcoin law, which makes the cryptocurrency ineligible tender, transcend the imaginable benefits. The IMF has besides urged El Salvador to dissolve the “Fidebitcoin” spot money and commencement charging fees for services provided by the government’s Chivo integer wallet.

IMF’s Recommendations for El Salvador

The International Monetary Fund (IMF) published a 114-page study connected El Salvador Friday with a dedicated conception connected bitcoin arsenic ineligible tender and the government’s Chivo integer wallet “as a caller means of payments.”

El Salvador became the archetypal state to follow bitcoin arsenic an authoritative currency with ineligible tender presumption alongside the U.S. dollar successful September past year. The IMF study notes that the Salvadoran government’s Chivo wallet, which tin beryllium utilized for dollars and BTC, has “amassed a sizeable fig of clients, 3.8 million, though it is unclear however galore are utilizing bitcoin successful their transactions oregon holding balances successful bitcoin.”

The study explains that nether El Salvador’s Bitcoin law, “a spot fund, Fidebitcoin, endowed with US$150 cardinal has been established to warrant the conversion” betwixt bitcoin and dollars. The funds person been chiefly utilized to concern the motorboat of Chivo, the study states.

According to the IMF:

In the near-term, the existent costs of implementing Chivo and operationalizing the Bitcoin instrumentality transcend imaginable benefits.

The IMF estimates that the short-term budgetary costs are 1% of GDP for 2021-2022 portion near-term gains whitethorn measurement up to ¼% of GDP per year.

The study besides outlines the risks of adopting bitcoin arsenic ineligible tender, stating:

By adopting bitcoin arsenic ineligible tender sizeable risks are introduced to fiscal stability, fiscal and marketplace integrity, and user extortion … If the usage of bitcoin increases significantly, it tin hazard the dollarization authorities that has proven to beryllium [a] palmy nominal anchor for the economy.

To “address the risks from utilizing bitcoin arsenic ineligible tender,” the IMF recommends “narrowing the Bitcoin law’s scope, astatine the minimum by removing bitcoin’s ineligible tender status, and making explicit its strictly voluntary quality for each benignant of transactions.”

The International Monetary Fund added that “Three different areas necessitate punctual corrective measures.” Two of the areas are “Developing strict Chivo’s regulatory oversight” and “Safeguarding fiscal stableness and adapting the banking regulatory frameworks.”

The 3rd country that needs contiguous corrective measures is “Containing the budgetary costs.” For this, the IMF wrote:

Staff recommends … making Chivo a self-funded institution (charging fees for services provided). Staff besides recommends ending US$30 subsidy to each caller Chivo idiosyncratic and liquidating Fidebitcoin — returning unused funds to the Treasury.

What bash you deliberation astir the IMF’s recommendations for El Salvador? Let america cognize successful the comments conception below.

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