El Salvador has been advised by the global monetary watchdog to exercise caution in expanding government exposure to Bitcoin (BTC) due to the “speculative nature” of crypto markets.
February 10 statement of the International Monetary Fund (IMF) pointed out that the risks of Bitcoin for El Salvador have “not yet materialized” due to the country’s “limited” use of Bitcoin, after IMF staff visited in the country last week.
It was suggested that El Salvador address Bitcoin’s risk to the country’s financial integrity and stability, fiscal sustainability, and consumer protection, noting that the use of Bitcoin “could grow” given that it is recognized as legal tender in the country since September 2021.
El Salvador has been urged to rethink its decision to issue the symbolic bond, as the IMF said it should be “avoided” due to its legal and financial risks. The statement noted:
“Given the legal risks, fiscal fragility, and largely speculative nature of crypto markets, authorities should reconsider their plans to expand government exposures to Bitcoin, including by issuing token bonds.”
The IMF also stressed the importance of “greater transparency” from the Salvadoran government regarding both its bitcoin transactions and the “financial situation” of its state-owned bitcoin wallet, the Chivo wallet.
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This comes after the recent announcement that a legal framework for a Bitcoin-backed bond in El Salvador, known as a “Volcano Bond,” was established on January 11.
The Salvadoran government said these bonds would be used to repay sovereign debt and finance the construction of its “Bitcoin City” project.
Bitcoin City is part of El Salvador’s plan to continue to attract crypto investors, and it has already been noted that a priority for the country in 2023 is to combat any criminal activity related to cryptocurrency.
Guillermo Contreras, CEO of DitoBanx, previously told Cointelegraph on January 6 that the opening of the National Bitcoin Office in El Salvador will function as “a central entity” to address these issues.