The International Monetary Fund (IMF) has called on El Salvador to withdraw its status as legal tender from the digital currency Bitcoin.
The Central American country was the first country in the world to grant the proof-of-work cryptocurrency this status in September last year. According to an official statement released on Tuesday, the IMF board stressed that there are several major risks associated with the use of Bitcoin – for financial stability, financial integrity and consumer protection, as well as the associated contingent fiscal liabilities.
While digital forms of payment such as Chivo, the e-wallet introduced in the Central American country, could promote financial inclusion, it said. However, the new economic environment around Chivo and Bitcoin would have to be strictly regulated and monitored. This was prompted by discussions on the economic situation that the Washington-based UN specialised agency regularly holds with member states. El Salvador has been discussing and negotiating with the IMF for a loan package of 1.3 billion US dollars for some time.
According to El Salvador’s Bitcoin law, every trader who is technically able to do so must accept the cryptocurrency. Taxes can also be paid in it. The controversial state president Nayib Bukele also announced the construction of a “Bitcoin City” in November.
Bitcoin is still the best-known digital currency in the world. It is considered decentraliced as it is not controlled by a central bank but created through a decentralised, energy-intensive computer process. Bitcoin is considered a speculative asset and is subject to violent price fluctuations.
The price of Bitcoin was just under 37,000 US dollars on Tuesday – in November, it had still reached a high of around $68,000. According to estimates based on information provided by Bukule on Twitter, El Salvador has now bought about 1,800 Bitcoin.