According to the latest reports, El Salvador’s Bitcoin dream is currently being investigated by the International Monetary Fund (IMF). In particular, the IMF urged El Salvador to reconsider its approach to Bitcoin law, recommending “narrowing” the scope of the law and reducing public sector exposure to Bitcoin.
Notably, BTC became legal tender in El Salvador in September 2021, and since then the country has been actively working to integrate crypto assets in the region.
Push To Tame Bitcoin Law, Why?
The IMF’s call for El Salvador to scale back its Bitcoin policies comes amid ongoing discussions with El Salvador’s authorities on “macroeconomic stabilization and reform policies.” Julie Kozack, the IMF’s communications director, recently addressed the organization’s concerns press briefing.
She stressed the need to address the risks associated with Bitcoin adoption in El Salvador, stating that regulatory oversight and the overall framework governing the BTC ecosystem in the country need to be strengthened.
The briefing revealed that the IMF is in talks with El Salvador to establish a program to stabilize the economy, support growth reforms and resolve issues related to BTC’s legal status.
Specifically, they revealed that their pressure on El Salvador to make a policy change regarding Bitcoin regulations is due to “potential risks” associated with El Salvador’s comprehensive embrace of the asset regarding “fiscal policy and financial stability.”
What’s next for El Salvador?
Despite the legal integration of BTC as an alternative currency, the IMF believes that many of the associated risks have not yet been fully realized. The IMF noted in a statement published in August:
It is widely recognized that further efforts are needed to boost transparency and mitigate potential risks to fiscal and financial stability arising from the Bitcoin project. Further discussions are needed in this and other key areas,
Specifically, the disclosed IMF plan aims to ensure that El Salvador’s public sector is not “unduly exposed” to BTC volatility and that the digital currency is “well-regulated” within the broader financial system. They added in a statement:
Progress has been made in negotiations on a Fund-backed program focusing on policies to strengthen public finances, boost bank reserve buffers, improve governance and transparency, and reduce Bitcoin risks
Meanwhile, it is worth noting that the bold move by the El Salvador government to recognize Bitcoin as legal tender was a global first and placed the country at the forefront of cryptocurrency innovation.
The region has made several cryptocurrency developments to further solidify its position as a cryptocurrency hub. In August this year, El Salvador added 162 BTC to its national holdings.
Additionally, the country in February fired BTC educational project aimed at equipping adolescent citizens with the skills needed to launch a node in the BTC network.
Featured image created with DALL-E, chart from TradingView