IMF: "El Salvador's Bitcoin Legal Tender Risk...Concerns Over Fiscal Soundness Deterioration"

"Financial Situation Worsens, Contingent Liabilities Expected to Increase"
Concerns Over Accelerated Economic Hardship if IMF Refuses Additional External Debt Support

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] The International Monetary Fund (IMF) has once again warned about the risks associated with El Salvador's adoption of Bitcoin as legal tender, following a similar warning in July. The IMF stated that this move could further deteriorate an already precarious fiscal situation and create contingent liabilities, making Bitcoin unsuitable as legal tender. However, as the El Salvador government ignores the IMF's warnings and expands Bitcoin investments, concerns are rising that the IMF may reject the government's request for additional external debt support, potentially worsening the economy.

On the 22nd (local time), based on the inspection team's visit to El Salvador, the IMF released a statement and report saying, "Considering Bitcoin's high price volatility, using Bitcoin as legal tender poses significant risks to consumer protection, fiscal soundness, and stability," and warned, "The use of Bitcoin as legal tender also creates contingent liabilities, and due to these risks, Bitcoin should not be used as legal tender."

It added, "El Salvador's public debt is already at a serious level even without including the issued Bitcoin bonds in the debt balance, and if the current situation continues, public debt could soar to 95% of GDP by 2026," recommending "a reduction in the scope of Bitcoin circulation and strengthening regulation and supervision of the new payment ecosystem."

El Salvador became the first country in the world to adopt Bitcoin as legal tender in September. Prior to adoption, in July, the IMF expressed negative views on the measure, stating it raised many macroeconomic, financial, and legal issues.

However, President Nayib Bukele of El Salvador is ignoring the IMF's recommendations and expanding Bitcoin investments. On the 20th, President Bukele announced a Bitcoin promotion policy, including building a Bitcoin city in the country's volcanic zone, mining Bitcoin using geothermal energy, and exempting various taxes. To fund this, he also announced plans to issue $1 billion (approximately 1.19 trillion KRW) in Bitcoin bonds. Regarding the IMF statement on the same day, President Bukele tweeted, "Although we differ on some issues such as Bitcoin adoption, the analysis of our country is interesting."

Concerns are growing both inside and outside El Salvador about President Bukele's actions. If the IMF refuses additional external debt support, a severe economic crisis could begin. El Salvador received $398 million in emergency support from the IMF in April and is currently negotiating for an additional $1.3 billion in external debt support.

This content was produced with the assistance of AI translation services.