IMF Calls for Transparency With El Salvador Bitcoin Adoption

The International Monetary Fund (IMF) recently launched a mission statement concerning El Salvador’s financial system, with the nation currently having bitcoin declared as an authorized tender. The organization claims that the risks associated with the cryptocurrency have been avoided due to its limited use, but they are concerned about potential future growth.

IMF Urges Alertness With El Salvador Bitcoin Adoption: Limited Use For Now, But Growth Could Raise Risk

On February 10, 2023, the International Monetary Fund (IMF) released a mission statement regarding their recent visit to San Salvador between January 30 and February 8 for the 2023 Article IV session. The statement noted that El Salvador has adopted bitcoin as legal tender, with the IMF acknowledging that the risks posed in 2021 were largely avoided.

“While the risks have not materialized due to the limited use of bitcoin so far, as suggested by survey and remittance data, its use could grow given its status as legal tender and new legislative reforms to encourage use of crypto assets, including tokenized bonds (Digital Assets Law)”, said the IMF researchers. “In this context, underlying risks to financial integrity and stability, fiscal sustainability, and consumer protection persist, and the 2021 Article IV recommendations remain valid.”

El Salvador declared bitcoin an authorized tender in September 2021, and development has been slow since then. The IMF emphasizes that there must be more transparency in the purchase of bitcoins by authorities and in state-owned wallets Chivo. “Greater transparency regarding government bitcoin transactions and the financial status of the state-owned bitcoin wallet (Chivo) is crucial, particularly to assess underlying tax contingencies and counterparty risks,” they urged.

In addition to the potential dangers associated with bitcoin’s gradual adoption and adverse financial effects, the IMF projects that the financial system in El Salvador will grow by 2.8% by 2022. However, they are predicting that financial vulnerability will increase in 2022 and the Salvadoran Treasury are not able to access the global capital markets.

The IMF identified two key points that Salvadoran Authorities should address: increasing fiscal transparency and implementing stronger anti-money laundering/combating terrorist financing (AML/CFT).

What are your thoughts on the IMF’s recommendations to ensure soundness, financial integrity and stability in the country? Please leave feedback below to let us know your opinion.