El Salvador Stands Firm on Bitcoin, Defying IMF’s Renewed Call to Drop BTC as Legal Tender

El Salvador Stands Firm on Bitcoin, Defying IMF’s Renewed Call to Drop BTC as Legal Tender

El Salvador has reaffirmed its commitment to embracing bitcoin despite the International Monetary Fund’s repeated calls for the country to drop the cryptocurrency as legal tender. The Salvadoran vice president emphasized that not only will El Salvador’s bitcoin law be maintained but at this moment the cryptocurrency also “enjoys the greatest credibility in the entire world.”

El Salvador Stands Firm on Bitcoin

El Salvador Vice President Félix Ulloa said in an interview with Reuters on Wednesday that bitcoin will remain legal tender in El Salvador during the second term of President Nayib Bukele even after the International Monetary Fund (IMF) again urged the country to drop the cryptocurrency as legal tender during negotiations for a billion-dollar loan. General elections will be held in El Salvador on Feb. 4 to elect the president, vice president, and all 60 deputies of the Legislative Assembly.

Ulloa affirmed that the Salvadoran government has no intention of reversing its decision that made BTC legal tender. He noted that the recent approval of spot bitcoin exchange-traded funds (ETFs) by the U.S. Securities and Exchange Commission (SEC) only strengthened its resolve. In September 2021, El Salvador became the first country in the world to establish bitcoin as legal tender alongside the U.S. dollar. Ulloa said:

Not only will it (the law) be maintained … At this moment, it enjoys the greatest credibility in the entire world.

He explained that if President Bukele and his New Ideas party secure a landslide victory in Sunday’s election, the Salvadoran government will proceed with its plans to launch bitcoin-backed bonds in the first quarter of 2024. Moreover, Ulloa confirmed that the construction of Bitcoin City, President Bukele’s proposed tax-free crypto haven in eastern El Salvador, would proceed, along with the issuance of passports to investors contributing $1 million in cryptocurrency.

IMF Again Asks El Salvador to Reconsider Bitcoin as Legal Tender

Following the conclusion of the IMF Executive Board’s Article IV consultation with El Salvador, the Fund published a report on Jan. 24 stating that IMF directors “agreed on the importance of boosting financial inclusion and noted that digital means of payment—such as the Chivo e-wallet—could play this role.”

However, the IMF stressed that the directors “emphasized the need for strict regulation and oversight of the new ecosystem of Chivo and bitcoin.” The report adds that they also “stressed that 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,” noting:

They urged the authorities to narrow the scope of the Bitcoin law by removing Bitcoin’s legal tender status.

The report further noted that some directors “expressed concern over the risks associated with issuing bitcoin-backed bonds.”

The IMF has repeatedly urged El Salvador to reconsider bitcoin as legal tender, starting with warnings in November 2021 and January 2022 about its risks and costs, followed by a detailed report in February 2023. Despite these warnings, El Salvador has remained steadfast in its commitment to bitcoin.

This was not the first time the IMF urged El Salvador to reconsider bitcoin as legal tender. Since November 2021, the Fund has repeatedly raised concerns about El Salvador’s use of bitcoin as legal tender, issuing warnings in November 2021 about its risks, in January 2022 about its costs, and culminating in a detailed report outlining specific issues in February 2023. Despite these warnings, El Salvador remains committed to bitcoin.

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