Drop bitcoin as legal tender, IMF urges El Salvador

A woman vends by a sign that reads, “Bitcoin accepted here”, outside a store where the cryptocurrency is accepted as a payment method in San Salvador, El Salvador September 24, 2021.

According to a statement released on Tuesday, the International Monetary Fund is trying to get El Salvadorans to use legal tender.

There are large risks associated with the use of bitcoin on financial stability, financial integrity, and consumer protection, as well as the associated fiscal contingent liabilities, according to the directors of the International Monetary Fund.

The report was published after bilateral talks with El Salvadoran and they decided to narrow the scope of the law. The Central American nation became the first country in the world to use the cryptocurrencies as legal tender.

The president added hundreds of dollars to the country's balance sheet in recent months because of the success of the experiment. On Friday, the president bought an additional 15 million dollars of the virtual currency. From its November record high, it is down 50%.

The president's plan to raise $1 billion via a "Bitcoin Bond" in partnership with Blockstream was mentioned in the report.

The launch of a national virtual wallet called Chivo was part of the nationwide move into the digital currency. Chivo is meant to be used by people who have never been a part of the banking system in a country where 70% of citizens do not have access to traditional financial services.

The Chivo e-wallet could help boost financial inclusion, though the directors of the International Monetary Fund emphasized the need for strict regulation and oversight.

The International Monetary Fund has been critical of thebitcoin experiment.

The statement Tuesday echoes a report shared by the International Monetary Fund in November, in which the financial regulator wrote that the high price volatility of the digital currency meant that it should not be used as legal tender.

The attempt to get a loan from the International Monetary Fund seems to have soured over the dispute over the virtual currency.

The country needs to figure out a way to shore up its finances. The country will be on an unsustainable path if current policies are not changed, according to the International Monetary Fund.