The Executive Board of the International Monetary Fund urged El Salvador to remove bitcoin's legal tender status, citing concerns about "financial stability, financial integrity, and consumer protection."
El Salvador is the first country in the world to make bitcoin legal tender, with the government giving $30 in free bitcoins to citizens who signed up for its national digital wallet, known as “Chivo,” or “cool” in English.
"The adoption of a cryptocurrency as legal tender, however, entails large risks for financial and market integrity, financial stability, and consumer protection," the board said in a report Tuesday. "It also can create contingent liabilities."
The board that while the pandemic interrupted ten years of growth, "El Salvador is rebounding quickly." The economy contracted by 7.9% in 2020 and is projected to grow by about 10% in 2021 and 3.2% in 2022, the board said.
"Against this backdrop, public debt vulnerabilities emerged," the board said. "Persistent fiscal deficits and high debt service are leading to large and increasing financing needs."
The directors agreed on the importance of boosting financial inclusion and noted that digital means of payment—such as the Chivo e-wallet—could play this role.
"However, they emphasized the need for strict regulation and oversight of the new ecosystem of Chivo and Bitcoin," the report said. "They urged the authorities to narrow the scope of the Bitcoin law by removing Bitcoin’s legal tender status."
Some of the directors "also expressed concern over the risks associated with issuing Bitcoin-backed bonds," the report said.
'Really Cheap' Purchase
Last week the Central American nation bought 410 Bitcoin as the world's largest cryptocurrency by market cap dropped below $37,000, a price not seen since last July. Bitcoin was off 1% to $36,904 at last check.
Costing roughly $15 million, President Nayib Bukele, an ardent Bitcoin maximalist, celebrated his country's "really cheap" purchase on Twitter, declaring that the nation had not missed the buying opportunity.
Bukele changed his Twitter profile to that of a McDonald’s employee after the price tumbled.
"Should I quit my job at McDonald's and open a #Bitcoin Burger joint?" he asked in a tweet that included a survey. Eighty-six percent of the respondents voted "Yes."
In November, Bukele said El Salvador would build an oceanside “Bitcoin City” at the base of a volcano.
The city will be circular to represent the shape of a large coin and will be built in the southeastern region of La Unión. The location will take advantage of the Conchagua volcano's geothermal energy to power Bitcoin mining.