The International Monetary Fund wants El Salvador to reject the volatile cryptocurrency Bitcoin as a legitimate tender and tightly regulate the wallets that the government has been running for global adoption.
The IMF declared in a report on Tuesday that the international lenders’ board urged authorities to confine the scope of the Bitcoin law by removing Bitcoin’s legal tender situation.
Adoption of a cryptocurrency as legal tender, on the other hand, entails significant risks to financial and financial stability, market integrity, and consumer security, according to the IMF statement.
The President’s statement
President Nayib Bukele pushed for Bitcoin to be recognized as legal tender alongside the US dollar. El Salvador’s Legislative Assembly designated the country as the first in June.
Bitcoin had plummeted in value late last year as well and was somewhat lower on this Tuesday than when the House voted on June 9 last yer. In September of 2021, the Bitcoin law drove into became an official law in the country.
There were concerns from the start that digital money designed to be independent of governments would attract criminal activities. Bukele marketed adoption as a solution for thousands of Salvadorans to avoid paying money transfer fees when sending money home to relatives living abroad.
President Bukele became the foremost world leader in embracing cryptocurrency when he enacted the Bitcoin Law last year, making BTC legal tender in Central America. Bitcoin’s price is expected to double in the next year, reaching $100,000, according to Nayib Bukele. He also stated that two more countries would follow El Salvador’s lead and legalize bitcoin.
He has since made several significant cryptocurrency investments and announced strategies to construct a Bitcoin City at the ground of a volcano along the Gulf of Fonseca, which will be partway funded by a $1 billion ‘Bitcoin Bond.’
Significance of Bitcoin in El Salvador
The law in El Salvador required all enterprises with technological capabilities to accept Bitcoin as payment. The rollout was a little shaky at first, but it appears to have eased out now.
Bukele has become a cryptocurrency advocate, and he’s subsequently talked of constructing a Bitcoin city and issuing Bitcoin-backed bonds, which some IMF directors are concerned about.
The office of Bukeles said that it had no immediate comment on the IMF’s announcement.
“They stressed that there are large risks associated with the use of Bitcoin on financial stability, financial integrity, and consumer protection, as well as the associated fiscal contingent liabilities. They urged the authorities to narrow the scope of the Bitcoin law by removing Bitcoin’s legal tender status,” the IMF said in the press release. “
The Bitcoin Price
El Salvador has spent roughly $85.5 million on Bitcoin. Since it became legal tender in September last year, including a $15 million purchase just a few days ago during the most recent drop when the price reached $36,000. The country has paid an average of around $47,000 per Bitcoin. The current price is approximately $37,000, implying that the Salvadoran investment has lost about 23% of its value. “The majority of people buy when the price is high, but the safest and most profitable time to buy is when the price is low,” Mr. Bukele said on Twitter, where he announces Bitcoin purchases and criticizes those who oppose this investment strategy.
The downturn has also not affected MicroStrategy stance on bitcoin.The business intelligence software company spent approximately $3.75 billion on Bitcoin, now worth roughly $4.5 billion. According to the company’s finance chief, the company will continue to buy.
However, holding cryptocurrency is an accounting nightmare. Past December, the Securities and Exchange Commission ordered MicroStrategy to adjust how it reports the significance of its substantial Bitcoin holdings. MicroStrategy argued that cryptocurrency should be treated like other assets, with immediate gains and losses. The Securities and Exchange Commission considers Bitcoin intangible, with losses reflected in impairments and gains realized only upon sale.
The Bottom Line
El Salvador reportedly requested a $1.3 billion loan from the IMF last year. However, the board stated that the financial bailout package would be granted if the requirements were met. One of these is repealing the bitcoin law, which would deprive the cryptocurrency of its status as legal tender in the country.
Because there is no assurance about the value of bitcoin, the IMF is nudging them to do so to guarantee financial stability. As a result, El Salvador must either revoke the cryptocurrency or forfeit the $1.3 billion IMF loan. It remains to be witnessed what finding the government of El Salvador will land on.
The condition, as mentioned earlier, is the cornerstone of the new agreement between the IMF and the government of El Salvador. If the said government accepts the deal, they will secure a $1.3 billion fund.