IMF Tells El Salvador Bitcoin Carries Large Risks, Could Cause 'Contingent Liabilities'

WASHINGTON (UrduPoint News / Sputnik - 29th January, 2022) The International Monetary Fund (IMF) views El Salvador's decision to adopt Bitcoin as legal tender as one that carries large risks for financial and market integrity and could lead to�"contingent liabilities," an IMF country report said.

"Since September 2021, the government has adopted Bitcoin as legal tender," the report said on Friday.�"The adoption of a cryptocurrency as legal tender, however, entails large risks for financial and market integrity, financial stability, and consumer protection. It also can create contingent liabilities."

The report comes two days after the IMF made a separate call to El Salvador to reverse its decision to make Bitcoin legal tender.

In Friday's report, the IMF said its Executive Directors�agreed on boosting financial inclusion and noted that digital means of payment - such as the Chivo e-wallet - could play this role.

However, the IMF Executive Directors emphasized the need for strict regulation and oversight of the new financial ecosystem of Chivo and Bitcoin.

The Executive Directors also expressed concern over the risks associated with issuing Bitcoin-backed bonds.

"Efforts to improve financial inclusion are welcome, but Bitcoin use carries significant risks and Bitcoin should not be used as an official Currency with legal tender status," the report said. "Narrowing the scope of the Bitcoin law will contain some of the macroeconomic risks. Strict regulation and supervisory oversight are needed to mitigate remaining fiscal, financial integrity and financial stability risks."

El Salvador President Nayib Bukele announced in November plans to build a Bitcoin city at the base of a volcano in the country, with the cryptocurrency used to fund the project.

Bitcoin hit a low of $32,981 this week, losing about half its value from a record high of $67,734 in November.