Following the news that bitcoin is now a legal tender in El Salvador, the International Monetary Fund (IMF) has warned that there may be some financial, legal, and macroeconomic ramifications of this decision. An IMF spokesperson warned that “digital assets are risky unless there are proper control measures for dealing in them.”
IMF Raises Worries Regarding El Salvador’s Bitcoin Decision
While speaking at a media conference, Gerry Rice (an IMF spokesman) revealed that the IMF body is already in discussion with legislators in El Salvador on how IMF can support their country’s economy with a $1 billion loan. Rice also suggested that the IMF would discuss with El Salvador’s President over their recent adoption of bitcoin as a legal tender in the country.
He stated that “there are several macroeconomic, legal and financial issues associated with adopting bitcoin as a legal tender. Hence, a thorough analysis needs to be done. We are monitoring the situation closely and keep dialoguing with the government. Unless there are proper control measures, several risks are associated with dealing with these virtual assets.”
After El Salvador lawmakers approved bitcoin as a legal tender, it also revealed that it would soon start using volcanoes to mine bitcoin. The country’s president, Nayib Bukele, said that “I have given la geo authorities (the country’s geothermal electric company) the go-ahead to develop bitcoin mining facilities. These facilities utilize volcanoes to mine bitcoins cheaply, have zero-emissions energy, are 100% clean and renewable. These plans are being developed at a rapid pace.”
The Possible Effect of El Salvador’s Bitcoin Adoption Decision
El Salvador’s president believed that approving bitcoin as a legal tender in the country will make it easier for its citizens abroad to invest in the country’s economy but affirmed that the US dollar is still acceptable as a legal tender.
He further said that bitcoin wouldn’t be forced on anyone in the country. Salvadorian lawmakers also approved creating a new $150 million trust to convert bitcoin to dollars immediately after a transaction is completed. Once it becomes coined as a legal tender within the next three months, the market will determine the BTC-USD exchange rate.
Bukele also revealed that he had already informed IMF representatives that making bitcoin a legal tender in the country would not affect El Salvador’s macroeconomics. Richard Galvin, a top executive from digital asset capital, a crypto fund management firm, opined that “the market’s focus will be whether other countries will follow El Salvador’s bitcoin adoption. These developments could be key to bitcoin’s rise or fall over the next three years.”
Other countries are inspired by this decision and are already proposing having their own Central Bank Digital Currencies (CBDC). While any of these governments will want to retain control of their currencies (whether digital or fiat), it is almost impossible to do the same with bitcoin. The only thing these governments can do is enforce stricter regulatory measures on using these digital currencies.
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