Concerned about risks posed by Bitcoin
The International Monetary Fund (IMF) released a report on the financial situation of El Salvador on the 10th. While appreciating the economic growth of El Salvador last year, he argued that the expansion of adoption should be reviewed in light of the “Bitcoin bonds” that the country is preparing to issue.
El Salvador, a poor country but an active investor, has achieved an estimated economic growth of 2.8% in 2022, and the number of crimes has dropped sharply. Meanwhile, inflation last year reached 7.2%.
This report is based on the findings of IMF staff’s direct visits to member countries such as El Salvador. It will be submitted for discussion by the IMF Executive Board, but at this stage it represents the views of the staff in charge and not the views of the IMF Executive Board itself.
The report pointed out the need to address the risks posed by Bitcoin.
As suggested by surveys and remittance data, bitcoin usage has so far been limited and the risks have not materialized.
However, there are concerns that Bitcoin’s status as legal tender and new legislative changes encouraging the use of crypto assets (virtual currencies), including token bonds (digital asset law), will lead to greater adoption. There is
Under these circumstances, risks to financial, fiscal stability and consumer protection remain, he added. In particular, it is imperative to increase the transparency of the El Salvadoran government’s bitcoin transactions and the financial situation of the state-owned bitcoin wallet, Chivo, for risk assessment.
In the early stages of implementation, the Chivo wallet experienced identity theft due to a lax KYC process, and some users engaged in arbitrage trading between the wallet and external exchanges. has been reported.
Legislation for bitcoin-backed claims
In September 2021, El Salvador became the first country in the world to adopt bitcoin as its national “legal currency,” and in January 2011 it just passed a new “Digital Securities Law.” It is this bill that the IMF is referring to this time.
The bill contains rules that would allow the government of El Salvador to issue Bitcoin-backed bonds.
El Salvador will raise funds by issuing about 130 billion yen ($1 billion) worth of bitcoin bonds to build a tax-exempt tax haven “Bitcoin City” and buy more of its large holdings of bitcoin. Although it is planned, there are many skeptical views about the feasibility of Bitcoin City.
connection: El Salvador Moves Forward to Issuing Bitcoin Bonds, Passes Digital Securities Bill
The report argued that buying more Bitcoins to raise funds through Bitcoin bonds carries significant financial risks and should be avoided.
Considering the legal risks in the virtual currency market and the volatility (price volatility) of the virtual currency market, El Salvador decided to limit its exposure to Bitcoin (portfolio being affected by price movements of certain assets). He said the company should reconsider its plans to expand.
“The 2021 recommendations remain valid,” he said. The IMF has repeatedly pointed out the risks of Bitcoin to El Salvador. In November 2021, after the Bitcoin bill was enacted, he urged Bitcoin to be removed from legal tender, citing high price volatility.
connection: IMF urges El Salvador to remove bitcoin from legal tender
What is Bitcoin Law in El Salvador
Alongside the US dollar, it recognizes bitcoin as legal tender and stipulates that citizens can use bitcoin for all payment scenarios. The bill, promoted by President Bukele of El Salvador, was passed by Congress on June 9, 2021. It was the first time that Bitcoin was officially recognized as a national legal tender.
Declare continuous purchase of Bitcoin
On the other hand, El Salvadoran President Najib Bukele declared in November 2022 that the country’s Ministry of Finance would buy 1 BTC of Bitcoin every day.
According to the Nayib Bukele Portfolio Tracker, the country’s investment performance, which holds a large amount of bitcoin, is currently at an unrealized loss of about -50%.
connection: President of El Salvador “Buy 1 BTC of Bitcoin every day”