The International Monetary Fund (IMF) concluded its visit to El Salvador and released a concluding statement by the IMF staff that visited the country in January 2023 describing the preliminary findings.
One of the most noticeable recommendations is that the Salvadoran Government reconsider its plans to expand the use of Bitcoin. There is no question that the IMF is not and has not been happy with the Bukele administration for making Bitcoin a legal tender in the country.
Since Bitcoin became a legal tender in El Salvador on September 2021, the IMF has suggested on many occasions to the Bukele administration that they should reconsider the legal tender status of Bitcoin and stop its implementation completely. The January 2023 visit makes similar suggestions regarding cryptocurrency.
The IMF staff states in its findings that the Bukele administration should address Bitcoin’s risks. According to them, the Bitcoin risks have not materialized yet due to the limited Bitcoin uses by Salvadorans thus far.
The International Monetary Fund worries that due to its legal tender status and new legislative reforms to encourage the use of crypto assets, including the Volcano bonds, Bitcoin use in the country could grow.
“In this context, underlying risks to financial integrity and stability, fiscal sustainability, and consumer protection persist, and the recommendations of the 2021 Article IV remain valid,” stated the International Monetary Fund (IMF).
The IMF also emphasizes the need for transparency in the Government’s Bitcoin purchases and the State’s own Chivo wallet.
Greater transparency regarding the government’s bitcoin transactions and the financial status of the state-owned bitcoin wallet (Chivo) is crucial, particularly to evaluate underlying fiscal contingencies and counterparty risks,” noted the IMF.
Transparency regarding Bitcoin is an issue questioned by the IMF and many local NGOs and individuals. For example, no official documents have been made public regarding the purchases of Bitcoin or money used for the Chivo Wallet Pet Hospital as of today’s date. The Salvadoran Government sealed that information.
The last information made public on the purchase of Bitcoin was done by President Bukele on June 30, 2022, via his Twitter account. “El Salvador bought 80 Bitcoins today at $19,000 each! Bitcoin is the future! Thank you for selling cheap,” Tweeted Nayib Bukele.
Then on November 16, 2022, President Bukele said, still on Twitter, “We are buying one Bitcoin every day starting tomorrow.” However, no information has been made public regarding these purchases.
Lastly, the IMF recommends that because of fiscal risks, El Salvador should give up financing purchases of Bitcoin by issuing tokenized securities (volcano bonds).
Given the legal risks, fiscal fragility, and largely speculative nature of crypto markets, the authorities should reconsider their plans to expand government exposures to Bitcoin, including by issuing tokenized bonds,” IMF.
The Salvadoran Legislature approved the digital assets law, which enables the Salvadoran Government to issue the famous volcano bond for one Billion in bitcoin, which announced and would serve to buy more tokens and create Bitcoin City.
All in all, the International Monetary Fund makes solid arguments regarding Bitcoin in El Salvador. However, the Bukele administration has also made it clear that they will not implement the IMF recommendations, even if surveys show that Salvadorans are not using Bitcoins.
