IMF Warns El Salvador to Consider Risks of Bitcoin as Legal Tender

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The International Monetary Fund (IMF) has recommended that El Salvador stop using Bitcoin as legal tender, pointing to financial and consumer risks associated with the cryptocurrency, soon after the country's President Nayib Bukele announced plans for the world's first Bitcoin city, powered by a volcano and financed by cryptocurrency bonds. El Salvador, a country that has used the US dollar as its primary fiat for over two decades, legalised Bitcoin as an official tender in September, and has been able to reap profits out of the move too.

In a statement, the IMF acknowledged that Bitcoin, and cryptocurrencies in general, can facilitate efficient payments, but allowing them as legal tender will likely pose problems for financial stability. “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. Staff recommends narrowing the scope of the bitcoin law and urges strengthening the regulation and supervision of the new payment ecosystem,” stated the IMF in a statement.

The global agency also called on El Salvador to narrow the scope of its Bitcoin law and strengthen the regulation and supervision of the new payment ecosystem.

El Salvador plans to build the world's first “Bitcoin City”, funded initially by Bitcoin-backed bonds, President Nayib Bukele said over the weekend, doubling down on his bet to harness the cryptocurrency to fuel investment in the Central American country.

Speaking at an event closing a week-long promotion of Bitcoin in El Salvador, Bukele said the city planned in the eastern region of La Union would get geothermal power from a volcano and not levy any taxes except for value-added tax (VAT).

The IMF regularly undertakes Article IV missions to member countries to consult with government officials before they request to use IMF resources. “The plans to issue sovereign bonds and use the proceeds to buy Bitcoin and fund infrastructure plans announced on November 20, occurred after the technical work of the mission concluded, and were not discussed with the authorities,” the IMF clarified.

This isn't the first time the IMF has warned the Latin American country for being Bitcoin-forward. Earlier this year, when El Salvador had just passed its historic Bitcoin Law, the IMF had a predictable reaction of opposing its prospects. Yet, despite its multiple warnings against the risks of a Bitcoin-legalised financial system, El Salvador had powered through with its plan. The country has launched its Bitcoin-powered Chivo Wallet app as well as established multiple ATMs to facilitate daily transactions and remittance transfer in Bitcoin.

Interested in cryptocurrency? We discuss all things crypto with WazirX CEO Nischal Shetty and WeekendInvesting founder Alok Jain on Orbital, the Gadgets 360 podcast. Orbital is available on Apple Podcasts, Google Podcasts, Spotify, Amazon Music and wherever you get your podcasts.


Telangana Joins CoinSwitch Kuber, Lumos Labs to Launch ‘India Blockchain Accelerator’ Program for Startups

Before India decides the rules and regulations for the crypto space, a ‘Blockchain Accelerator' plans to give some startups the necessary assistance to succeed. The Telangana government has inked deals with crypto exchange CoinSwitch Kuber and innovation management firm Lomos Labs to mark the blockchain education-focused initiative in India. Entrepreneurs wanting to enter the blockchain space would be able to use the initiative to explore opportunities, mentorship, tech support, and funding scopes for their projects. India Blockchain Accelerator is the second edition of T-Block Accelerator, a Telangana-originated programme.

Blockchain is the underlying technology of cryptocurrencies and consists of information called blocks connected through cryptography. Blockchain technology currently supports cryptocurrencies, non-fungible tokens (NFTs), as well as the metaverse in the present day.

The programme will go on for a tenure of four months and will accept admission requests from early-stage Web2 and Web3 startups and blockchain builders.

Entrepreneurs from eight selected startups will also get an opportunity to secure up to $700,000 (roughly Rs. 5.32 crore) for pre-seed and seed funding from companies like Lightspeed and WoodstockFund.

Members of the chosen startups will also be allowed to attend workshops, meet-ups, mentorship, and coaching.

“Right now, anybody who's launching an enterprise online has to pay 70 percent of its income to international infrastructure suppliers, and cash strikes out. The blockchain trade is forming a brand new Internet altogether,” said Ashish Singhal, Founder, CoinSwitch Kuber.

The development comes at a time when India is mulling over what regulations to impose on the crypto space.

The government has expressed concern that cryptocurrencies may be used for luring investors with misleading claims and for funding terror activities and money laundering.

Recently, the crypto market was left shaken by reports that the Parliament agenda in India included a bill seeking to prohibit all private cryptocurrencies from operating in the country. The agenda also noted that the government wishes to bring an official digital currency for India.

However, it should be noted that this exact same bill was also listed for the Budget Session, but did not get discussed at the time.

Currently, the proposal drafted by the finance ministry is awaiting cabinet approval before it reaches Parliament.

Earlier this month, Prime Minister Narendra Modi's Twitter handle was briefly hacked, and a tweet claiming that India has “officially adopted Bitcoin as legal tender” was put out from it.

The Prime Minister's Office later said the account was immediately secured after the matter was escalated to Twitter.

Interested in cryptocurrency? We discuss all things crypto with WazirX CEO Nischal Shetty and WeekendInvesting founder Alok Jain on Orbital, the Gadgets 360 podcast. Orbital is available on Apple Podcasts, Google Podcasts, Spotify, Amazon Music and wherever you get your podcasts.