El Salvador has been warned by the International Monetary Fund (IMF) against utilizing Bitcoin as legal cash due to the numerous hazards involved with cryptocurrencies.
The warning came just one day after Salvadoran President Nayib Bukele declared his intention to establish a “Bitcoin metropolis” powered by a volcano and financed with Bitcoin bonds.
The IMF says El Salvador shouldn’t use Bitcoin as Legal Tender
During a promotional Bitcoin event late Saturday in the coastal village of Mizata, Mr. Bukele told a rowdy crowd that the planned new metropolis will “have everything.” The 40-year-old remarked, “Everything is committed to Bitcoin. Residential areas, business areas, services, museums, entertainment, bars, restaurants, airport, port, rail – everything is committed to Bitcoin.”
On stage, the president, who was wearing a baseball cap backward, announced that the city will have no income taxes and only a value-added tax (VAT). El Salvador was urged by the International Monetary Fund (IMF) on Monday not to utilize Bitcoin as legal cash, citing multiple hazards linked with the cryptocurrency.
El Salvador is the world’s first country to accept Bitcoin as legal cash in addition to the US dollar, which it has used for two decades. In September, the country’s Bitcoin law went into effect. El Salvador has also purchased 1,120 bitcoins, according to President Nayib Bukele of El Salvador.
Before requesting to use the IMF’s resources, the IMF sends Article IV missions to member countries to consult with government authorities. “The acceptance of Bitcoin as legal tender, the regulation and supervision of Bitcoin service providers, and the e-wallet Chivo were also considered,” according to the IMF.
The IMF addressed the following in its “Staff Concluding Statement of the 2021 Article IV Mission” for El Salvador: ”Given Bitcoin’s high price volatility, its use as a legal tender entails significant risks to consumer protection, financial integrity, and financial stability. Its use also gives rise to fiscal contingent liabilities. Because of those risks, bitcoin should not be used as a legal tender.”
The IMF then advised El Salvador to “limit the scope of the Bitcoin law” and to improve “the regulation and supervision of the new payment ecosystem.” The IMF’s announcement came just one day after President Bukele revealed plans to develop the world’s first Bitcoin metropolis, powered by a volcano and financed with Bitcoin bonds. Except for the value-added tax, there will be no taxes in Bitcoin city, he said (VAT).
“The intentions to issue sovereign bonds and use the profits to buy bitcoin and fund infrastructure plans revealed on November 20 took place after the mission’s technical work was completed and were not discussed with the authorities,” the IMF confirmed.
“Although we certainly do not agree on some aspects, such as the adoption of Bitcoin, the analysis it makes of our country is interesting,” Bukele said of the IMF’s comments.
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