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- IMF advice for El Salvador
The International Monetary Fund (IMF) has told El Salvador that the costs of implementing a law to introduce Bitcoin as legal tender outweigh the potential benefits. The IMF also urged El Salvador to dissolve the Fidebitcoin trust fund and start charging fees for services provided by the government’s Chivo digital wallet.
IMF advice for El Salvador
On Friday, the International Monetary Fund (IMF) released a 114-page report on El Salvador that includes a section on Bitcoin and the state-owned digital wallet Chivo.
El Salvador became the first country to accept Bitcoin as an official currency with legal tender status alongside the US dollar last September. The IMF report notes that El Salvador’s dollar and BTC wallet, Chivo, “has amassed a significant 3.8 million customers, although it is not clear how many of them use Bitcoin in their transactions or hold Bitcoin on their balance sheet.”
The report states that “a Fidebitcoin trust fund has been set up with $150 million to provide conversion” between bitcoin and dollars. The funds were primarily used to finance the launch of Chivo, the report said.
According to the IMF:
“The costs of implementing Chivo and enacting Bitcoin law outweigh the potential benefits.”
According to the International Cryptocurrency Fund, short-term budget spending is 1% of GDP in 2021-2022, while short-term benefits can be up to ¼% of GDP per year.
The report also talks about the risks associated with accepting bitcoin as legal tender:
“The acceptance of bitcoin as legal tender poses significant risks to financial stability, financial and market integrity, and consumer protection… If bitcoin use increases significantly, it could jeopardize the dollarization regime, which has proven to be [успешным] nominal anchor for the economy”.
To “remove the risks associated with the use of bitcoin as legal tender,” the IMF recommends “narrowing the scope of bitcoin law, at a minimum, removing bitcoin’s legal tender status and making it clear that it is strictly voluntary for all types of transactions.”
The International Monetary Fund added that “three other areas require prompt corrective action.” Two of these areas are “developing Chivo’s strong regulatory oversight” and “ensuring financial stability and adapting the banking regulatory framework.”
The third area requiring immediate corrective action is “spending containment”. In this regard, the IMF writes:
“The headquarters recommends … to make Chivo a self-financed company (to charge a fee for the services provided). And also recommends ending the $30 subsidy to every new Chivo user and liquidating Fidebitcoin – returning unused funds to the treasury.”
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