El Salvador has been advised by global monetary watchdogs to be cautious about expanding the government’s exposure to Bitcoin (BTC) due to the “speculative nature” of the crypto market.
A February 10 statement from the International Monetary Fund (IMF) confirms that the risk of Bitcoin for El Salvador has “not materialized” yet because the country has “limited” use of Bitcoin, after IMF staff visited the country last week.
The IMF proposed that El Salvador address Bitcoin risks to the country’s fiscal sustainability and consumer protection, as well as financial integrity and stability.
It added that the use of Bitcoin “could grow” as it has been recognized as legal tender in El Salvador since September 2021.
El Salvador has been urged to rethink its decision to issue token bonds, as the IMF says it should be “relocated” due to legal and financial risks. The statement noted:
“Due to legal risks, fiscal fragility and the generally speculative nature of the crypto market, authorities should reconsider plans to expand the government’s exposure to Bitcoin, including by issuing tokenized bonds.”
The IMF also emphasized the importance of “greater transparency” from the government of El Salvador regarding Bitcoin transactions, and the “financial condition” of the state-owned Bitcoin wallet, the Chivo wallet.
related: El Salvador’s Bitcoin decision: tracking adoption years later
This comes after the new news that the legal framework for Bitcoin-backed bonds in El Salvador, known as “Volcano bonds”, was established on January 11.
The El Salvadoran government says the bonds will be used to pay off the country’s debt and finance the construction of a proposed “Bitcoin City.”
Bitcoin City is part of El Salvador’s plan to continue attracting crypto investors, which previously noted that the country’s priority in 2023 is to tackle criminal activities 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 be the “central entity” to solve the problem.