The world currency watchdog has advised El Salvador to be careful when expanding government exposure to Bitcoin (BTC) due to the “speculative nature” of the crypto markets.
a February 10 statement of the International Monetary Fund (IMF) emphasized that Bitcoin risks for El Salvador “have not materialized” yet due to the “limited” use of Bitcoin in the country, after IMF staff visited the country last week.
The IMF stated that El Salvador must address the risk of Bitcoin to the country’s fiscal sustainability and consumer protection, as well as its financial integrity and stability.
He stressed the importance of recognizing these risks, as the use of Bitcoin in El Salvador “could grow” given that it has been recognized as legal tender in the country since September 2021.
El Salvador was urged to reconsider its decision to issue tokenized bonds, as the IMF stated that it should be “avoided” due to its legal and financial risks. The statement noted:
“Given legal risks, fiscal fragility, and the largely speculative nature of crypto markets, authorities should reconsider their plans to expand government exposure to Bitcoin, including by issuing tokenized bonds.”
The need for “greater transparency” on the part of the Salvadoran government was also emphasized, both in its Bitcoin transactions and in the “financial situation” of its state Bitcoin wallet, the Chivo wallet.
Related: The Bitcoin Decision in El Salvador: Tracking Adoption One Year Later
This comes after recent news that a legal framework for a Bitcoin-backed bond was established in El Salvador on January 11, known as the “Volcano Bond.”
The Salvadoran government said that these bonds will be used to pay off sovereign debt and finance the construction of its proposed “Bitcoin City.”
Bitcoin City is part of El Salvador’s plan to continue attracting crypto investors, and it was previously noted that a priority for the country in 2023 is to address any possible criminal activity related to cryptocurrencies.
Guillermo Contreras, CEO of DitoBanx, previously told Cointelegraph on Jan. 6 that the opening of the National Bitcoin Office in El Salvador will function as “a central entity” to deal with these issues.
