IMF says it continues to have strong engagement with El Salvador

El Salvador became in September the first country to make bitcoin a legal tender, alongside the U.S. dollar.

El Salvador in September became the first country in the world to adopt bitcoin as legal tender. (File Image)

The International Monetary Fund’s (IMF) board on Friday said it continued to have strong engagement with El Salvador and that no determination had been made on whether it could lend to the country which has made the cryptocurrency bitcoin legal tender.

El Salvador became in September the first country to make bitcoin a legal tender, alongside the U.S. dollar.

The IMF has pressed El Salvador to backtrack on the bitcoin move, citing financial, economic and legal concerns. On Tuesday, the IMF’s board “urged” El Salvador to reverse its decision to make bitcoin legal tende, while calling for strict regulation of the country’s Chivo e-wallet.

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In the near-term the costs of implementing Chivo and operationalizing the bitcoin law exceed potential benefits, as associated budgetary costs are forecast at 1% of gross domestic product 2021-2022, the IMF said in a report published on Friday.

The IMF said that crypto-technologies and digital payment systems like Chivo could potentially make payments more efficient, and enhance financial inclusion and support growth.

But bitcoin carries significant risks and “its price volatility makes it inefficient as means of payments, unit of account or store of value,” said the IMF.El Salvador’s economy has been dollarized for two decades.

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