El Salvador’s bitcoin law will raise economic & legal issues; IMF warns

By Amirtha P S, Desk Reporter
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The International Monetary Fund (IMF) has raised its economic and legal concerns over El Salvador’s decision to make bitcoin a parallel legal tender, further clouding the outlook for the crisis lender-backed program for the country.

Earlier this week, El Salvador has become the first country in the world to adopt bitcoin as legal tender, with President Nayib Bukele praising its potential to help Salvadorans living abroad to send remittances back home.

“Adoption of bitcoin as legal tender raises a number of macroeconomic, financial and legal issues that require very careful analysis. What we have said in the past, in general, is that crypto-assets can pose significant risks, and effective regulatory measures are very important when dealing with them,” said Gerry Rice, an IMF spokesman, during a scheduled press briefing.

The IMF in April 2020 approved $389 million in emergency aid for El Salvador as the coronavirus crisis swept the globe. The Washington-based crisis lender is currently in talks with the government following a request for an additional loan.

Foreign investors, concerned about the future of an IMF deal which they see as key for the Central American country, have demanded increasingly higher premiums to hold Salvadoran debt.

Mr. Rice said the IMF will meet with Mr. Bukele to discuss the bitcoin law. El Salvador is in talks with the crisis lender seeking a $1 billion program, amid the country’s recovery from the COVID-19 pandemic.

El Salvador’s law means the famously volatile digital currency, bitcoin, will become authorized to be used for many aspects of daily life, from property purchases to tax contributions and it will have equal footing with the US dollar, which became its official currency 20 years ago.

“Crypto is a very marginal story to the Salvadoran investment thesis. Whether El Salvador is going to be attractive (for investors) or not is going to depend on Bukele’s ability to use his unquestionable political capital to bring a large consolidated fiscal deficit into control,” said Patrick Esteruelas, research head at Emso Asset Management in New York.

Related: China blocks crypto-related Weibo accounts to revise its role in bitcoin mining