El Salvador and IMF recommendations: calls for greater regulation of Bitcoin and risk reduction for public finances.
On September 7, 2021, El Salvador declared Bitcoin legal tender. This decision sparked mixed reactions from international financial entities such as the International Monetary Fund (IMF).
The IMF has recently renewed its recommendations on Bitcoin regulation in the country, suggesting the adoption of more restrictive and defined regulatory measures. On October 3, during a press conference, Julie Kozack, director of the IMF’s communications department, stated:
“What we have recommended is a narrowing of the scope of the Bitcoin Law, strengthening the regulatory framework and oversight of the Bitcoin ecosystem, and limiting public sector exposure to Bitcoin.”
The IMF’s concerns extend to the fiscal and financial stability of the state. Although El Salvador’s GDP showed a growth of 3% in 2023, the IMF emphasizes that improving regulation and reducing risks is essential to protect the national economy.
The current recommendations follow observations previously made in August when the financial institution stated:
“While many of the risks have not yet materialized, there is joint recognition that further efforts are needed to enhance transparency and mitigate potential fiscal and financial stability risks from the Bitcoin project.”
As early as November 2021, the IMF had stated that Bitcoin should not be used as legal tender in El Salvador and urged the Central American country to strengthen the regulation and supervision of the ecosystem.
