The International Monetary Fund (IMF) has reiterated its concern over El Salvador’s extensive involvement with Bitcoin. IMF spokeswoman Julie Kozack spoke about this topic during a press conference on Thursday. The organization has been consistent in warning the country about the risks of crypto-activity given the volatile nature of virtual digital assets. Currently, the IMF is working with the Financial Stability Board (FSB) to develop a comprehensive regulatory framework that could regulate multiple scenarios related to crypto activities.
According to Kozack, the IMF urged El Salvador to limit people’s exposure to Bitcoin. The organization has been asking the administration to rein in its crypto policy for the past three years, since it was declared legal tender alongside the US dollar in El Salvador in 2021.
“What we have recommended is narrowing the scope of the Bitcoin law, strengthening the regulatory framework and oversight of the Bitcoin ecosystem, and limiting the public sector’s exposure to Bitcoin,” Kozack said in response to a question.
After legalizing the use of Bitcoin in 2021, El Salvador has taken a few more steps to make the oldest, most expensive cryptocurrency an integral part of its economy. Salvadoran President Nayib Bukele is a vocal supporter of Bitcoin.
From approving crypto businesses to start operations in the country, Bukele is spearheading the creation of ‘Bitcoin City’ which is predicted to become a tax-free haven for miners with access to renewable volcanic energy. The Salvadoran president also approved Bitcoin bonds to allow the country to raise capital to pay off debts for the country.
in April, an IMF associate sent a new warning to Bukele that the institute was concerned about the financial risks associated with Bitcoin.
On Friday, Bitcoin was trading at $61,400 (roughly Rs. 51.5 lakh). Last year, when Bitcoin was trading at around $29,449 (roughly Rs. 24.5 lakh), El Salvador saw an 18 percent drop in BTC-based remittances.
Due to El Salvador’s ongoing involvement with Bitcoin, the IMF has reportedly withheld $1.4 billion (roughly 11,754 crores) in financial assistance that El Salvador needs to accelerate the payment of its public debt and other financial obligations.
IMF official Tobias Adrian announced the financial body’s concerns about crypto in February.
“The uneven growth of crypto markets around the world means that the challenges facing regulators are different. At the same time, the capacity of regulators to monitor and respond to the risks generated by crypto markets is also different,” he said.