Bitcoin is a decentralized cryptocurrency that acts as an alternative to the U.S Dollar and other fiat currencies, but after years of government crackdowns (in part due to fears it can be used for tax evasion), El Salvador has announced plans to move away from Bitcoin’s legal tender status in favor of its own currency, the Lempira.
The “el salvador to make bitcoin legal tender” is a headline that was released by the International Monetary Fund. The article discusses how the country should stop using Bitcoin as their legal tender and instead use fiat currency.
The International Monetary Fund has pushed El Salvador to delist bitcoin as legal cash due to its significant dangers to financial stability, the latest twist in the fund’s long-running discussions with the heavily indebted Central American country to get a $1.3 billion loan.
El Salvador’s recent acceptance of bitcoin as a national currency, the fund warned on Tuesday, raises concerns about financial integrity, consumer protection, and fiscal responsibilities in a small economy with few government resources.
The executive directors of the International Monetary Fund (IMF) “urged the authorities to reduce the scope of the bitcoin legislation by eliminating Bitcoin’s legal currency status,” according to the fund.
In September, El Salvador became the first nation in the world to recognize bitcoin as legal cash, mandating all companies to accept the digital currency as payment.
All companies in El Salvador are required to accept bitcoin as a means of payment.
JOSE CABEZAS/REUTERS/JOSE CABEZAS/REUTERS/JOSE CABEZAS/REUT
The move was applauded by cryptocurrency traders and miners throughout the world, but experts highlighted that President Nayib Bukele did not address worries about the volatile crypto asset’s ability to upset a $26 billion economy.
Mr. Bukele, who is 40 years old, recently announced that his nation would issue $1 billion in bitcoin-backed bonds this year in a move to attract crypto money as his government grapples with mounting debt-service expenses and large sovereign bond payments.
Several IMF directors raised worry about the risks connected with issuing bitcoin-backed bonds in their evaluation of El Salvador’s economy, according to the IMF. It also said that the country’s enormous public debt is unsustainable.
El Salvador became the first country in the world to embrace bitcoin as its official currency, enabling citizens to pay for common items using a digital wallet. This is how the poor country’s dangerous experiment looks. Getty Images/Marvin Recinos/Agence France-Presse (Video from September 7th, 21st)
Requests for reaction from the Salvadoran government were not immediately returned.
The International Monetary Fund has long advised against using highly speculative crypto assets as a national currency, partly because privately issued tokens circumvent institutions and central banks entrusted with maintaining economic and financial stability.
According to persons familiar with the negotiations, El Salvador, which is presently negotiating a financial-aid deal with the IMF, did not inform the fund about its ambitions to embrace bitcoin.
Last year, IMF officials told ratings firms that a deal with El Salvador was close, but talks have stalled since then, partly due to Mr. Bukele’s surprise decision to push through a law making bitcoin legal tender, but also due to political measures that the US government saw as Mr. Bukele’s attempt to cement power by weakening institutions and the rule of law.
The IMF praised the development of a digital wallet as part of the bitcoin project for promoting financial inclusion by providing a free digital payment option, but it also emphasized the need for “tight regulation and control of the new ecosystem.”
Last year, El Salvador’s government bonds had the poorest performance among developing markets, selling at a high discount due to mounting default concerns. El Salvador’s already speculative debt was downgraded further into junk territory by Moody’s Investors Service in July, citing “a deterioration in the quality of policy-making.”
Santiago Pérez can be reached at [email protected]
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The “bitcoin price” is a cryptocurrency that is used as a medium of exchange. The International Monetary Fund (IMF) has urged El Salvador to ditch bitcoin’s legal tender status, claiming it could be used for money laundering and other criminal activities.
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