IMF directors urge El Salvador to remove Bitcoin as legal tender

Executive directors of the International Monetary Fund (IMF) have urged El Salvador to remove Bitcoin’s status as legal tender in the country, according to a Jan. 25 announcement from the organization. 

The recommendation came as the IMF’s executive board finished a so-called “Article IV consultation” with El Salvador on Jan. 24, which refers to mandated discussions the organization conducts with its member countries. 

IMF executive directors “stressed that there are large risks associated with the use of Bitcoin on financial stability, financial integrity, and consumer protection, as well as the associated fiscal contingent liabilities,” the latest press release stated. “They urged the authorities to narrow the scope of the Bitcoin law by removing Bitcoin’s legal tender status.” It continued: “Some directors also expressed concern over the risks associated with issuing Bitcoin-backed bonds.”

The directors’ comments come after a previous announcement in late November when a staff team visiting El Salvador warned about the risks of using Bitcoin as legal tender in a concluding statement.

IMF directors generally agreed with the previous staff report, including the view that increasing financial inclusion in El Salvador is important and digital payment systems like the government-issued Chivo wallet could have a role in doing so. But they also underscored that the country needs “strict regulation and oversight of the new ecosystem of Chivo and Bitcoin.”

The IMF’s take on Bitcoin in El Salvador is especially relevant due to reports that the organization has been in lending talks with the Central American country. Today, Bloomberg reported that the IMF’s concerns about Bitcoin have “stymied” talks with El Salvador about providing a $1.3 billion IMF loan.

El Salvador made Bitcoin legal tender alongside the U.S. dollar on Sept. 7, a few months after president Nayib Bukele announced plans to do so last June.