By Arghyadeep Dutta, 4:30 pm ET:
The International Monetary Fund (IMF) said El Salvador’s adoption of Bitcoin as a legal tender may imply several risks and regulatory challenges.
“Adoption of Bitcoin as legal tender raises a number of macroeconomic, financial and legal issues that require very careful analysis, so we are following developments closely and will continue our consultation with authorities,” IMF spokesperson Gary Rice said in a press briefing on Thursday.
“Crypto-assets can pose significant risks, and effective regulatory measures are very important when dealing with them.”
El Salvador has become the first country globally after the Congress of the country approved a law on Wednesday requiring businesses to accept Bitcoin in exchange for goods and services.
President Nayib Bukele said the digital currency would help counter the country’s low banking penetration and lower the cost of sending remittances.
El Salvador’s law means Bitcoin will be parallel legal tender with the dollar, which became the official currency 20 years ago.
Rice said an IMF team is conducting virtual meetings with El Salvador government on the review of Article IV and a potential credit program “including policies to strengthen economic governance.”
Under Article IV of the IMF’s ‘Articles of Agreement,’ the organization holds bilateral talks every year with member countries by visiting the country and collecting economic and financial information.
The IMF team will meet with Bukele on Thursday to discuss the Bitcoin law. The country is in discussions with the IMF seeking a near $1 billion program.
El Salvador’s bonds are the worst performers in emerging markets this week. The sovereign bonds dropped, sending the yield on the bonds due 2025 up 71 basis points to 7.8% at 10:40 a.m. in New York, Bloomberg reported.
“The plans for Bitcoin under an increasingly autocratic regime will likely only compound concerns about corruption, money laundering, and the independence of regulatory agencies,” Amherst Pierpont’s head of Latin America Fixed Income Strategy, Siobhan Morden, wrote in a note, Bloomberg reported.
“We are following developments closely, and we’ll continue our consultations with the authorities,” Rice said.
Picture Credit: World Stock Market