(Kitco News) The International Monetary Fund (IMF) warned El Salvador against the country’s Bitcoin-exposure risks and called for more transparency.
El Salvador became the first country to adopt Bitcoin as a legal tender in 2021. The country then went on a Bitcoin buying spree, but the government has not been forthcoming on how much Bitcoin it has bought.
Based on President Nayib Bukele’s tweets, El Salvador acquired 2,381 bitcoins, but that is not counting Bukele’s November promise to buy one Bitcoin every day starting November 18.
There is no official record of how much El Salvador bought so far. Reuters estimated that the country bought around 2,470 bitcoins for around $106.4 million.
After a visit to the country, the IMF pointed to risks associated with the country’s exposure to the cryptocurrency, calling on El Salvador to address them.
“While risks have not materialized due to the limited Bitcoin use so far—as suggested by survey and remittances data—its use could grow given its legal tender status and new legislative reforms to encourage the use of crypto assets, including tokenized bonds (Digital Assets Law),” the missions’ concluding statement said on Friday.
Last month, El Salvador’s passed a law to regulate the issuance of other digital assets. El Salvador’s Congress voted on the Digital Assets Issuance bill, which allows the country to issue the first round of ‘volcano bonds’ to pay down foreign debt and build up the ‘Bitcoin City’ investment haven.
“Underlying risks to financial integrity and stability, fiscal sustainability, and consumer protection persist,” the IMF’s statement said.
The IMF also called for greater transparency from El Salvador as there is a lot of uncertainty. “Greater transparency over the government’s transactions in Bitcoin and the financial situation of the state-owned Bitcoin-wallet (Chivo) remains essential, especially to assess the underlying fiscal contingencies and counterparty risks,” the statement noted.
Financing Bitcoin purchases by issuing tokenized securities should be refrained from due to fiscal risks, the IMF stressed, adding that El Salvador should reconsider adding more exposure to Bitcoin.
“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. The use of proceeds by the new Bitcoin Fund Management should follow regular expenditure controls and good governance practices,” the IMF’s statement said.
At the time, the IMF praised El Salvador’s growth of 2.8% last year, highlighting “the unprecedented reduction in crime, and strong remittances and tourism revenues.”
Bukele faced public criticism for his choice to diversify into Bitcoin – a decision that has not been popular with his citizens.
One of Bukele’s main arguments for adopting Bitcoin was to let his people save on bank charges when receiving or transferring money from overseas, especially to and from the U.S. Remittances accounted for more than a quarter of El Salvador’s GDP. However, a year later, the Salvadoran Central Bank said that Bitcoin still made up “less than two percent” of all remittances from emigrants.
On top of that, most Salvadorans said they view the move as a “failure,” according to a poll conducted by the University of Central America (UCA) and published in October of last year. The survey revealed that 75.6% of those polled never used cryptocurrency this year, and 77% consider crypto adoption “to have been a failure,” AFP reported citing the survey.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
