The International Monetary Fund on Tuesday called on El Salvador to stop using bitcoin as legal tender, citing “large risks” posed by the cryptocurrency.
The call by the Washington-based crisis lender came as the cryptocurrency dropped in value amid wider volatility on Wall Street in recent days, undoing much of the gains it had made during a record-setting climb in value last year.
In September 2021, the small Central American nation became the first country in the world to embrace the digital money, allowing consumers to use it in all transactions, alongside the US dollar.
The IMF staff had previously called on Nayib Bukele, El Salvador’s president, to reconsider putting bitcoin at the centre of his country’s finances.
The latest pronouncement used much stronger language and came from the IMF’s board, which is comprised of representatives of member governments.
The board’s directors “urged the authorities to narrow the scope of the bitcoin law by removing bitcoin’s legal tender status,” according to a statement.
They “stressed that there are large risks associated with the use of bitcoin on financial stability, financial integrity and consumer protection” and with issuing bitcoin-backed bonds.
Bitcoin was trading at about $37,000 on Tuesday, having lost about half its value compared with the record of $67,734 hit in November 2021.
Growing Appetite
Bitcoin shot up in value in 2021 as Wall Street showed a growing appetite for cryptocurrency, while Tesla boss Elon Musk’s controversial tweets about the digital assets helped the market rise and fall alike.
The trend was not lost on Bukele, who was elected in 2019 with promises to fight organised crime and improve security in his violent country.
His move to legalise bitcoin in El Salvador drew worldwide attention and sparked protests on the streets of capital San Salvador that were also over his administration’s judicial reforms, which critics said threaten democracy.
Thousands took to the streets carrying signs reading “No to bitcoin” and at one point burning one of the bitcoin ATMs that had been installed nationwide.
They didn’t appear to deter Bukele, who announced in November plans to build the world’s first “Bitcoin City,” powered by a volcano and financed by $1 billion cryptocurrency bonds.
His administration had also taken advantage of price drops to buy more bitcoin.
- AFP, with additional editing by George Russell
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