IMF urges El Salvador to drop bitcoin as legal tender

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The IMF has urged El Salvador to stop recognizing bitcoin as legal tender in the country and expressed concern over its plans to issue cryptocurrency-linked bonds, as prices for digital coins hit a low. difficult.

In September, El Salvador became the first country in the world to make bitcoin legal tender under a plan spearheaded by Nayib Bukele, the country’s 40-year-old president and self-styled “CEO”. This meant that the digital asset could be used to purchase goods, send funds, and even pay taxes in the country.

But the executive directors of the IMF, from which El Salvador is seeking more than $1 billion in financing, expressed concern about the move in a statement released on Tuesday.

“[The directors] emphasized that there are significant risks associated with the use of bitcoin on financial stability, financial integrity and consumer protection, as well as the associated contingent tax liabilities,” the statement read.

Bukele, a bitcoin evangelist, has since spent tens of millions of public dollars buying the cryptocurrency — and losing money. It doubled last week even as the price of the digital currency crashed to its lowest level in six months.

The Central American nation’s talks with the IMF showed few signs of progress and concerns over the government’s financing plan weighed on El Salvador’s bonds, among the worst performing in emerging markets last year.

El Salvador’s relations with the United States, the largest contributor to the IMF, also deteriorated under Bukele. Washington’s acting charge d’affaires left the country because she said the Salvadoran government had “no interest” in improving relations.

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Despite the attention that Bukele’s Bitcoin experiment has drawn, there is little evidence of widespread use of the cryptocurrency for day-to-day transactions in the country and its implementation has been one of the most difficult measures. less popular taken by the widely admired president.

Bukele said he plans to build a volcano-fueled, low-tax “bitcoin city” funded in part by a $1 billion issuance of cryptocurrency-backed sovereign bonds. Analysts are watching the bond issuance, which is expected in the coming weeks.

Siobhan Morden of Amherst Pierpoint Securities said in a recent note: “While ‘first mover’ status on innovative financial products suggests initial investor demand, it is not clear that this structure would attract sufficient demand in as a recurring source of cash.”

Bukele, a prolific social media user who often makes big government announcements via Twitter, changed his profile picture on Monday to himself wearing a McDonald’s hat and shirt, a reference that has become popular among cryptocurrency enthusiasts. warned.

He also posted tips for taking advantage of bitcoin’s falling price to buy, not sell, and that McDonald’s employees should invest a portion of their paycheck in bitcoin.

A government spokesperson did not immediately respond to a request for comment.

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