IMF Asks El Salvador to Narrow Scope of Bitcoin Law, Limit Public Exposure

The International Monetary Fund has repeated its express concern about El Salvador’s strong engagement with Bitcoin. The issue was addressed by an IMF spokesperson, Julie Kozack, at a Thursday press conference. The organization has continued to sound alarm bells for the country over the risks posed by crypto activities by the volatile nature of virtual digital assets. At this point, the IMF is working with FSB to formulate a comprehensive framework of laws that can be applied to all permutations of crypto activity.

The IMF pleaded with El Salvador to cap people’s exposure to bitcoin, but Kozack states that for the past three years since it became an officially declared legal tender along with the US dollar in El Salvador back in 2021, the organization has been asking the administration to rein in its crypto policy.

What the bank has recommended is a shrinking of the scope of the Bitcoin law, making the regulatory framework and oversight into the Bitcoin ecosystem tighter, and limiting public sector exposure to Bitcoin, Kozack said in response to a question.

After legalizing the use of Bitcoin in 2021, El Salvador has taken a number of other steps to integrate the oldest, most expensive cryptocurrency into its economy as a vital part of it. Salvadoran President Nayib Bukele is an ardent supporter of Bitcoin.

From licensing crypto businesses to operate in the country to pioneering an emerging ‘Bitcoin City’, which will be a tax-free mine haven with renewable volcanic energy, Bukele is carving a space for emergence from the dark clouds. As part of this scheme, he also approved Bitcoin bonds, through which his country would seek to raise the much-needed capital to offset debt repayment for the country.

In April, an IMF associate warned Bukele once more that the institute was still concerned about the financial risk involved with Bitcoin.

Bitcoin traded at $61,400 (approximately Rs. 51.5 lakh) on Friday. When Bitcoin traded at around $29,449 (approximately Rs. 24.5 lakh), El Salvador reported a fall of 18 per cent in remittances based on BTC last year.

The IMF reportedly has delayed providing $1.4 billion in financial aid, which El Salvador needs to accelerate public debt payments and other financial dues. At least since El Salvador continued engaging with Bitcoin, IMF official Tobias Adrian posted an outline of the financial body’s concerns with crypto in February.

With the growth of crypto markets uneven across the world, the challenges regulators face are different. At the same time, the capacity of regulators to monitor and respond to risks generated by crypto markets is also different, he said.