IMF Report on El Salvador’s Bitcoin Adoption: Risks Reduced, But Transparency Is Needed
The International Monetary Fund (IMF) issues a concluding mission statement on El Salvador and its economy, from 10 February 2023. Article IV of the International Monetary Fund visited San Salvador from January 30 to February 8 for consultations and the statement discusses bitcoin adoption in El Salvador and states that “risks must be addressed. “Currently In 2021 the International Monetary Fund acknowledges that the risk it poses has been largely avoided. Researchers at the International Monetary Fund state that the limited bitcoin usage so far has not posed a risk and – as we can see through the survey and the data – its legal tender status and its use as a means to encourage and promote the use of crypto assets. But the latest development may add to the legislative reform it is experiencing, in which tokenized bonds (digital assets) have been included.
Certainly, in this context, risks to financial integrity and stability and state treasury stability and consumer protection remain, and the recommendations in Article IV of 2021 remain valid.
Indeed, El Salvador was one of the first countries to declare bitcoin legal in 2021, and since then, its growth has been sluggish. The country has made way to invest in regular bitcoin assets and we can say that since then it has left bitcoin in its coffers while the International Monetary Fund banks on the need for more transparency in the government’s bitcoin purchases and the state-owned Chivo wallet. And the agency states that, of course, “transparency about the government’s overall bitcoin transactions and the financial status of the state-owned bitcoin wallet (Chivo) is of paramount importance, especially with respect to the underlying fiscal and risk factors.” This is necessary to make an assessment. In addition to the risks associated with bitcoin and its slow adoption and adverse economic shocks, the El Salvadoran economy grew rapidly last year and is expected to recover by 2022, according to the International Monetary Fund. The economy grew by 2.8% in 2022. The International Monetary Fund claims that the El Salvador treasury still does not include access to international capital markets amid growing economic weakness in 2022. International Monetary Fund two Identifies key issues the Salvadoran government can address including: implementing better anti-money laundering/combating the financing of terrorism (AML/CFT) policies and increasing and demonstrating significant levels of financial transparency
