Following an economic assessment mission to El Salvador, the International Monetary Fund (IMF) has concluded that the risks associated with Bitcoin have not materialized in the country. The IMF even notes improvements in the Salvadoran economy in 2022 and envisages an increase in the use of Bitcoin in the country. This financial institution, however, had strongly criticized El Salvador’s adoption of Bitcoin in September 2021.
No Bitcoin risks in El Salvador
The International Monetary Fund (IMF) seems to have changed its mind about the scope of El Salvador’s legalization of Bitcoin. While in 2021 the IMF severely criticized the adoption of Bitcoin in the country of Nayib Bukele, the financial institution finally acknowledged today that “the risks associated with the use of Bitcoin have not materialized in El Salvador.” The statement was made in a statement released on February 10, 2023 following an IMF mission to El Salvador from January 30 to February 8.
The International Monetary Fund notes a limited use of Bitcoin since its legalization in El Salvador. However, the IMF envisions a significant increase in Bitcoin use this year due to regulatory clarity. Indeed, Salvadoran parliamentarians passed a law regulating the issuance of digital assets in January.
Bitcoin use could increase given new legislative reforms to encourage the use of crypto assets, including tokenized bonds (Digital Assets Law).
IMF
In the wake of the adoption of Bitcoin as legal tender in El Salvador in September 2021, the International Monetary Fund was one of the actors criticizing Nayib Bukele’s decision. In a November 2021 statement, the financial institution said that the use of Bitcoin as an official currency “poses significant risks to consumer protection, financial system integrity, and financial stability.
In response to Nayib Bukele’s firmness on his Bitcoin project, the IMF suspended its funding to El Salvador. Many economists had even predicted that without IMF support, poor El Salvador would be unable to pay its obligations in 2023. But the opposite has happened. Without IMF assistance, El Salvador has managed to pay its $800 million in debt and associated interest. After this payment, El Salvador is now one of the few debt-free countries in the world.
El Salvador is doing well economically
In its press release of February 10, 2023, the IMF also reviews the situation of the Salvadoran economy. The International Monetary Fund emphasizes that thanks to the government’s effective response, the Salvadoran economy has fully recovered to its pre-pandemic level.
The main social and economic advances noted by the International Monetary Fund in El Salvador include:
- Improved personal security through the implementation of a Territorial Security Plan, which has resulted in an unprecedented reduction in crime.
- Diversification of the economy through tourism.
- The drastic reduction of trade costs and the time needed to perform administrative tasks.
- The increase in public spending on education from 3.6% of GDP in 2019 to 5% in 2022.
- The robust growth of El Salvador’s economy of 2.8 percent due to strong domestic demand.
A few months ago, President Nayib Bukele said that his country’s economy was doing well. In an op-ed piece, Bukele explained that all of the country’s socio-economic indicators had increased. He said he understands that El Salvador is continually under fire from the global elites, as they control everything but Bitcoin.
IMF makes recommendations to make Bitcoin more beneficial to Salvadorans
Despite noting that the risks associated with Bitcoin have not materialized, the International Monetary Fund still remains cautious about the use of Bitcoin in El Salvador. The institution continues to believe that Bitcoin poses a risk to financial integrity and stability, sustainability and consumer protection. Nevertheless, the International Monetary Fund is under no illusion. The IMF knows that Salvadoran authorities are not going to give up on Bitcoin.
Rather than calling for the abandonment of Bitcoin as in 2021, the IMF instead makes recommendations to the authorities to make it more beneficial to the country. To that end, the IMF first recommends increasing the transparency of government transactions in Bitcoin. This lack of transparency also irritates in El Salvador. A local organization went so far as to file a complaint against Nayib Bukele for his Bitcoin purchases.
Furthermore, the IMF recommends that the government limit its exposure to the volatility of Bitcoin. To that end, the government should stop buying Bitcoins and issue tokenized bonds. It’s not clear whether this recommendation will meet with Nayib Bukele’s approval. Indeed, President Nayib Bukele launched a DCA on November 18 to buy 1 Bitcoin every day. This operation is doing quite well, as since its inception, the value of Bitcoin has increased by over 30%.
Finally, the IMF recommends the rapid finalization of the anti-money laundering and anti-terrorist financing law. Additional rules regarding Bitcoin and other cryptos should be incorporated into it, the IMF insists.
The decision to make Bitcoin a legal tender has been described as risky by many observers. Nayib Bukele, its originator, has been described by some as a leader leading his people to their doom. It is clear that those who criticized this decision finally recognize that it is not all bad. In a few years, Nayib Bukele may be recognized as a true visionary.
I dream of a world where every citizen has total control over themselves, including their finances. I believe that Bitcoin is one of the tools that will achieve this revolution. Since 2019, I am learning about this cryptocurrency and spreading the word around.
