The International Monetary Fund (IMF) has urged El Salvador to drop Bitcoin as legal tender and better regulate the digital wallet the government created and promoted to its citizens.
The South American country became the first in the world to adopt the cryptocurrency as legal tender in September last year.
However, the IMF has urged “the authorities to narrow the scope of the Bitcoin law by removing Bitcoin’s legal tender status,” it said in a statement on Tuesday.
“The adoption of a cryptocurrency as legal tender, however, entails large risks for financial and market integrity, financial stability and consumer protection,” It added.
Bitcoin as legal tender
Salvadoran president Nayib Bukele led the push to adopt Bitcoin as legal tender alongside the US dollar. El Salvador’s Legislative Assembly passed a law in June, making it the first country in the world to do so.
El Salvador has now enticed four million people to start using Bitcoin, which essentially works as a government backed electronic wallet.
President Nayib Bukele argues that it’s a way of offering digital banking to the great majority of the population – around 70 percent – who don’t yet use a bank.
But recently Bitcoin has once again shown how volatile it is. After nearly doubling in value in November, Bitcoin has plunged and on Tuesday was slightly below $35,000 (€31,023) where it was when the congress voted on June 9.
From the start, there were concerns that a decentralised digital currency like Bitcoin – created to be beyond the control of governments – would attract criminal activity. Bukele promoted the adoption as a way for Salvadorans to avoid money transfer fees when relatives living outside the country sent home remittances.