Directors of the International Monetary Fund (IMF) have agreed on the importance of boosting financial inclusion in El Salvador and noted that digital means of payment—such as the Chivo e-wallet—could play this role. However, they have emphasized the need for strict regulation and oversight of the new ecosystem of Chivo and Bitcoin.
They emphasised that there are significant risks associated with the use of Bitcoin in terms of financial stability, financial integrity, and consumer protection, as well as fiscal contingent liabilities. They urged the authorities to narrow the scope of the Bitcoin law by removing Bitcoin’s legal tender status. Some Directors of IMF have also expressed concern over the risks associated with issuing Bitcoin-backed bonds. The Executive Board of the IMF on January 24 concluded the Article IV consultation with El Salvador.
Since September 2021, the El Salvador government has adopted Bitcoin as legal tender. Adoption of a cryptocurrency as legal tender, however, poses significant risks to financial and market integrity, financial stability, and consumer protection. It can also result in contingent liabilities.
IMF Directors cautioned that fiscal vulnerabilities—stemming from the large public debt stock-to-GDP ratio—have grown during the pandemic and need to be promptly addressed.
