El Salvador should dissolve the $150 million trust fund it created when it adopted the cryptocurrency bitcoin as legal tender and return any unused funds to its treasury, the International Monetary Fund said on Friday.
The recommendation is part of an international lender’s report on El Salvador’s economy and goes beyond a statement earlier this week urging El Salvador to abandon bitcoin as legal tender.
The trust fund aims to allow automatic conversion of bitcoin into another currency, the U.S. dollar, El Salvador, to encourage people to be wary of the adoption of the highly volatile digital currency.
The IMF also recommends removing the $30 discount to encourage people to start using the digital wallet Chivo, and strengthening regulation of digital wallets to protect consumers. It shows that there may be benefits to using Chivo, but only in US dollars, not bitcoin.
In the short term, the actual costs of implementing Chivo and implementing Bitcoin laws outweigh the potential benefits, the report said.
The office of El Salvador’s President Nayib Bukele did not immediately respond to a request for comment, but in recent days Bukele has dismissed the IMF’s advice on bitcoin.
The International Monetary Fund has expressed concern over El Salvador’s increasing exposure to bitcoin’s volatility and urged greater transparency.
Government officials told the International Monetary Fund that the introduction of Chivo has greatly improved financial inclusion, drawing millions of previously unbanked people into the financial system. They also talked about a parallel travel promotion for Bitcoin enthusiasts.
According to the report, the government sees no need to reduce the scope of its bitcoin laws, but could strengthen the agreed regulations.
Bukele has spearheaded the push for Bitcoin alongside the U.S. dollar as legal tender. El Salvador’s Legislative Assembly made the country the first to do so in June, and the Bitcoin law went into effect in September.
What we highlighted in the report is that having a digital wallet that allows people to use digital payment methods and keep their savings there (especially dollars) can be good for the economy and growth, but again I emphasize the IMF Alina Carare, head of the El Salvador delegation, said in a conference call with reporters on Friday that the emphasis on the U.S. dollar was due to the volatility of bitcoin prices.
Bitcoin has plummeted after nearly doubling in value late last year.
El Salvador and the International Monetary Fund have been negotiating a $1.3 billion loan for months. Carare did not say whether a possible loan would be put on hold if El Salvador continued to use bitcoin as legal tender.
When asked, Carare said that we will continue to be in close contact with the government of El Salvador.
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