Andrew Bailey, the governor of the Bank of England (BoE) has raised concerns over El Salvador’s step of legalising Bitcoin as a legal tender. The bank chief has expressed concerns regarding the volatility of the crypto market and raised the question of whether Salvadorans are even aware of the risks being taken by their government. Bailey was speaking at the Cambridge University student union when he spoke about his views on the crypto market, which has become a matter of concern for several governments around the world due to its unregulated and decentralised nature.
“It concerns me that a country would choose it as its national currency. What would worry me most of all is, do the citizens of El Salvador understand the nature and volatility of the currency they have?” a report by news portal City AM quoted Bailey as saying.
Bailey’s comments come in the backdrop of England, mulling over launching a national digital currency.
“There is a strong case for digital currencies, but in our view it has to be stable, particularly if it’s being used for payments. That is not true for crypto assets,” the bank chief added.
Currently, cryptocurrencies are not governed by any bank or financial intermediary. Instant and untraceable cross-border fund transfers can easily be facilitated using crypto tokens such as Bitcoin and Ether. Several nations including India, South Korea, and the US are exploring ways to regulate the crypto space.
Earlier in November, the International Monetary Fund (IMF) also warned El Salvador against using Bitcoin as an official currency.
“Given Bitcoin’s high price volatility, its use as a legal tender entails significant risks to consumer protection, financial integrity, and financial stability. Its use also gives rise to fiscal contingent liabilities. Because of those risks, Bitcoin should not be used as a legal tender,” the IMF said.
Meanwhile, Nayib Bukele, the president of El Salvador has been accelerating the adoption of Bitcoin in the central American country.
Currently, El Salvador holds around 1,220 Bitcoin tokens worth around $70 million (roughly Rs. 524 crore) at the time of writing. Bitcoin is being used as a legal tender along with the US Dollar in El Salvador since September this year.
Over 200 Bitcoin ATMs have also been installed around the country.
Recently, Bukele revealed his plans of building a “Bitcoin City” at the base of the Conchagua volcano, in order to power Bitcoin mining with renewable energy.
Meanwhile, other small nations like Tonga and Palau have been witnessing discussions around legalising Bitcoin as a legal tender so that the remittances they get from the non-residents working abroad do not reduce in service fees, which is deducted by money transfer platforms.