IMF warns El Salvador bitcoin legal tender adoption unwise - The IMF's 8 warnings to El Salvador one month after the" unwise shortcut " to adopt bitcoin as legal tender.
The International Monetary Fund has issued several warnings to El Salvador about the adoption of bitcoin as legal tender, scheduled for next September 9. The multilateral body does not expressly cite the country chaired by Nayib Bukele, but it clearly alludes to him when it says that "trying to convert cryptoassets into national currency is an unwise shortcut."
El Salvador will be the first country in the world to equate a cryptocurrency to conventional money. In the case of the Central American state bitcoin will join the US dollar, so its financial sovereignty is still scarce, as pointed out by the IMF and part of Salvadoran society, which has demonstrated against Bukele's pioneering policy these weeks in the streets.
The director of Monetary Affairs and Financial Markets of the IMF, Tobias Adrian, and the director of the Legal Department of the organization, Rhoda Weeks-Brown, indicate in the blog Diálogo a Fondo that the policy of the Salvadoran leader is "too big a step."
"Some countries might be tempted to take a shortcut: adopt crypto assets as their national currency. Many of them are in fact secure, easily accessible and cheap transaction. However, we believe that in most cases, the risks and costs outweigh the possible benefits, " they say, in a clear warning to the Spanish-American country.
IMF warns El Salvador bitcoin legal tender adoption unwise
Among the risks, they point out that" its value can be extremely volatile, " and refer to the peak reached by bitcoin last April, when it came to be worth 65,000 dollars (almost 55,000 euros). "It plummeted to less than half that value two months later, "IMF advisors recall, who apostille that"and yet bitcoin is still alive."
"For some, it's an opportunity to transact anonymously, for better or for worse. For others, it's a way to diversify portfolios and hold a speculative asset that can generate fortune, but also significant losses," he sums up about the main cryptocurrency, which currently has a market value of $ 37,973 a unit, according to Coinmarketcap. About 32,000 euros.
Adrian and Weeks-Brown note that while " bitcoin and its counterparts are largely on the periphery of finance and payments," this does not prevent "some countries are seriously considering granting crypto assets legal tender status and even converting them into a second (or potentially the only) national currency."
For IMF officials "trying to convert crypto assets into national currency is a not advisable shortcut", so it launches these 8 warnings to El Salvador and any other country that intends to carry out similar policies:
1-Macroeconomic instability
The IMF warns that with the widespread adoption of cryptocurrencies macroeconomic stability is at risk, since companies and households would waste a lot of time deciding which currency to keep, to the detriment of the one they could use in "participating in productive activities." Tax revenues could also be exposed, in this case by the exchange rate.
2-Monetary policy would lose strength
Believe so Adrian and Weeks-Black, remember that central banks cannot set interest rates for foreign currency: "Normally, when a country adopts a foreign currency as their own, 'matter', the credibility of the monetary policy, foreign and expects its economy —and interest rates— will adjust to the economic cycle abroad. None of this is possible in the case of widespread adoption of cryptoassets."
IMF warns El Salvador bitcoin legal tender adoption unwise
3-Fluctuations in prices
The above situation leads to "domestic prices could become highly unstable". Even if everything were denominated in bitcoin, " the prices of imported goods and services would continue to fluctuate enormously, following the vagaries of market valuations," Adrian and Weeks-Brown detail.
4-Financial problems due to illicit activities
The IMF points out that financial integrity would also suffer. "Without strong anti-money laundering and terrorism financing measures, crypto assets can be used to launder money obtained through illicit means, finance terrorism and evade taxes. This could present risks to a country's financial system, its fiscal balance sheet and its relations with foreign countries and their corresponding banks," said its advisors.
5-New legal issues
With the adoption of bitcoin or other cryptocurrencies, "new legal problems" would also arise from " complex and extensive modifications to monetary legislation to avoid creating a disjointed legal system." The IMF recalls the need to make the means of payment "widely accessible" and "have a sufficiently stable value to facilitate its use in medium-and long-term monetary obligations."
IMF warns El Salvador bitcoin legal tender adoption unwise
6-Exposure of financial institutions
International Monetary Fund analysts believe that "banks and other financial institutions could be exposed to large fluctuations in crypto asset prices" and wonder whether regulation against banks ' exposures to foreign currency or risky assets could be maintained if bitcoin obtained legal tender status.
7-Consumer protection would be undermined
The IMF points out that widespread use of crypto assets would undermine consumer protection, as households and businesses could lose wealth due to large fluctuations in value, as well as suffer from fraud or cyberattacks. "In the case of bitcoin, the resource is difficult, since there is no legal issuer," they add.
8 - "Nefarious ecological implications"
The IMF is not forgetting another of the most controversial aspects of bitcoin, its environmental footprint due to mining. "It requires an enormous amount of electricity to power the computer networks that verify transactions. The ecological implications of adopting these cryptoassets as a national currency could be dire, " zanjan.
For all of the above, the IMF considers it" difficult "for cryptocurrencies to be imposed in countries with" credible institutions " and controlled inflation and exchange rates. "Households and businesses would have very little incentive to price or save on a parallel crypto asset like bitcoin," as "its value is too volatile and unrelated to the real economy."
IMF warns El Salvador bitcoin legal tender adoption unwise
The international body believes that "even in relatively less stable economies, the use of internationally recognized reserve currencies, such as the dollar or the euro, would be more attractive than adopting a crypto asset."
The IMF calls for "caution" and offers alternatives to cryptocurrencies, such as digital currencies issued by central banks.
"Governments must step up efforts to deliver these services and take advantage of new digital forms of money while maintaining stability, efficiency, equity and environmental sustainability," they conclude.
# IMF warns El Salvador bitcoin legal tender adoption unwise #
