IMF Sees Risks After El Salvador Makes Bitcoin Legal Tender

El Salvador’s adoption of Bitcoin as legal tender may imply a series of risks and regulatory challenges, International Monetary Fund spokesman Gerry Rice said Thursday.

“Adoption of Bitcoin as legal tender raises a number of macroeconomic, financial and legal issues that require very careful analysis so we are following developments closely and will continue our consultation with authorities,” Rice said, speaking in Washington. “Crypto assets can pose significant risks and effective regulatory measures are very important when dealing with them.”

An IMF team is conducting virtual meetings with El Salvador on its Article IV review of the country and a potential credit program “including policies to strengthen economic governance” Rice said. The team will meet with Bukele Thursday.

El Salvador’s congress approved a law this week requiring businesses to accept Bitcoin in exchange for goods and services. President Nayib Bukele said the digital currency will help counter El Salvador’s low banking penetration and cut the cost of sending remittances.

The nation’s bonds dropped, sending the yield on its bonds coming due in 2025 up 71 basis points to 7.8% at 10:40 a.m. in New York. El Salvador’s bonds are the worst performers in emerging markets this week, according to a Bloomberg Barclays index.

“The plans for Bitcoin under an increasingly autocratic regime will likely only compound concerns about corruption, money laundering and the independence of regulatory agencies,” Siobhan Morden, head of Latin America Fixed Income Strategy at Amherst Pierpont, wrote in a note.

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