IMF Says El Salvador Should Avoid Trading Bitcoin Bonds – Here’s Why

The International Monetary Fund (IMF) has warned El Salvador to avoid trading Bitcoin bonds due to the risks it poses for the economy. This latest development comes after increased regulations from the Central American country that promotes the adoption of digital assets. 

IMF: New Digital Asset Law Poses Risks 

The IMF issued the statement following its recent visit to El Salvador, where it consulted with the country’s financial representatives. According to the text, the IMF indicates that the risks of adopting Bitcoin as a legal tender have yet to materialize. There could be increased risks following the approval of new laws tailored toward promoting the use of digital assets and Bitcoin bonds. 

The Legislative Assembly of El Salvador approved a new bill earlier in January that regulates the issuance of digital assets beyond BTC. The bill President Nayib Bukele presented through the Ministry of Economy is the latest in a series of regulations for digital assets. It provides a legal framework for operations and transfers of digital assets in El Salvador, including issuing tokens and their public offerings. 

Related Reading: Bitcoin NFT Ordinals Boosts Taproot Adoption By 1,000% In Q1 2023

The law also establishes the creation of the National Digital Assets Commission, which will be the new regulatory body that will apply the securities law and protect the rights of buyers and issuers of these assets. In addition, the legislation also established rules for the creation of volcano bonds or bitcoin bonds, which the government would issue. El Salvador intends to issue $1 billion dollars in Bitcoin bonds to purchase BTC and towards constructing the highly vaunted Bitcoin City. 

However, the IMF believes that there needs to be greater transparency regarding the purchase of bitcoin by the government. It should be noted that the El Salvador government has come under criticism for the lack of transparency regarding using public funds to buy Bitcoin. 

Chivo Wallet App Comes Under Criticism  

The IMF also directed some comments toward the Chivo wallet, the official bitcoin wallet in El Salvador. According to the international organization, assessing the underlying fiscal and counterparty risks the wallet poses is important. 

This remark arose after several complaints about the wallet ranging from failed transactions, blocked transfers, or disabled accounts. Identity theft cases were also reported, and even the government of El Salvador was accused of being responsible for losing funds. This is because the Chivo Wallet was allegedly used to defraud more than $12 million.

Related Reading: Bitcoin in El Salvador – One Year Later

However, the El Salvador government continues to insist on the wallet, which has had more than 4 million downloads since its release. According to critics, the Bitcoin policy taken up by the Central American country has been a failure with several problems. 

Bitcoin Price 

Bitcoin has had a resurgence in 2023, with its price up by 30% since the start of the year. At the time of writing, Bitcoin is trading around $21,800, down 7% in the last week. 

Featured image from dreamstime.com and chart from TradingView

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