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Should El Salvador Ditch Bitcoin as Legal Tender? – IMF Thinks So

The International Monetary Fund (IMF) monitors the global economy and provides loans and assistance to its 190 member countries. They recently urged El Salvador to abandon Bitcoin as a legal tender. The IMF collects economic data and reports it to the board during regular meetings with its member countries. The board then consults with the government about issues and potential solutions.

IMF Meeting With El Salvador

The IMF believes El Salvador has a Bitcoin problem. After the meeting, the international organization said that the Central American country’s economy is contracting, increasing its public debt. According to the report, the fact that Bitcoin has been the national currency since September 2021 is detrimental to the country’s economic recovery. This is because: “Making a cryptocurrency legal tender poses significant risks to the market and financial integrity, financial stability, and user protection. It may also result in uncertain liabilities.” The IMF has been against this since June 2021, when El Salvador’s President Nayib Bukele said at the Bitcoin Conference in Miami that he would pass legislation requiring people and businesses to accept Bitcoin as payment unless they lacked adequate internet access. The US dollar has been the country’s sole currency since 2001. According to an International Monetary Fund spokesperson, “Effective regulatory measures are important when dealing with crypto assets.” This implies that the country was not ready. Nonetheless, the Legislative Assembly quickly signed the bill into law. So, El Salvador became the world’s first country to use Bitcoin as its official currency three months later. At the start of the consultation process, The IMF told El Salvador again in November 2021 that it should stop using Bitcoin as legal currency due to its volatile price. Nevertheless, Bukele went on to add approximately 1,800 BTC to the country’s treasury. Furthermore, when the market crashed, he purchased an additional 410 BTC. As a result, according to Bloomberg, El Salvador had $12 million in unrecovered losses as of January 12.

El Salvador’s Government Buys The Dip By Adding 410 Bitcoins To Its Treasury

On January 21, 2022, El Salvador’s government spent $15 million on a new purchase of Bitcoins. El Salvador, in Central America, made Bitcoin legal last year and has been increasing its Bitcoin reserves. Following the recent drop in the value of Bitcoin, El Salvador purchased 410 more tokens for $15 million. Bitcoin’s price dropped from $42,270 to as low as $35,000. On Twitter, President Nayib Bukele provided additional information about purchasing the dip. El Salvador’s President made a tweet to his 3.4 million followers “Some guys are selling for an absurdly low price.” At this point, the reserve could contain more than 1,500 Bitcoins worth more than $50 million. Bukele, on the other hand, does not appear to be affected by Bitcoin’s volatility. He remains a supporter of cryptocurrency. Bukele has been working to make crypto more accepted and useful in his country. This is from installing Bitcoin ATMs to creating a government-backed Bitcoin wallet for Salvadorans called Chivo. However, people in other parts of the world are still debating how to regulate the cryptocurrency industry. Central governments in India and Russia, among others, have recently announced plans to prohibit crypto activities. Because governments oppose the use of cryptocurrencies, Bitcoin and other cryptocurrencies lost a significant amount of value between November and January.

These Countries Could Be The Next to Accept Bitcoin as Legal Tender

One of the most common criticisms critics level at cryptocurrencies is that they will never be widely used. In other words, it means they will never be very useful. However, on September 7, 2021, El Salvador became the first country to accept Bitcoin as legal currency. This has the potential to change things for the better. A small Central American country using Bitcoin is unlikely to be enough to make it a global currency, but it could be the first domino to fall. Other countries are already investigating El Salvador’s historic move, and if they think it’s a good idea, Bitcoin could be in use globally.  Here are four more countries to watch because it appears that they will follow El Salvador’s lead.

Panama

Panama borders El Salvador, so it’s not surprising that it may soon recognize Bitcoin as a legal tender. Moreover, unlike many other countries that were said to be considering doing the same, Panama is the country closest to becoming the second to accept Bitcoin as legal tender despite the lack of legislation.

Cuba

Cuba has not yet fully accepted cryptocurrencies as legal tender, but it has taken steps in that direction. As a result, the country now officially recognized and regulated cryptocurrencies, allowing its citizens to use them freely.  Part of this decision was influenced by the fact that the United States makes sending money between Cuba and the United States more difficult. This includes the closure of over 400 Western Union branches across the country. As a result, Cubans can now use cryptocurrency to send money to others. Furthermore, employers can pay them in cryptocurrency for their work.

Ukraine

Ukraine is yet to legalize cryptocurrencies such as Bitcoin and Ethereum, but the country is moving in that direction. The country’s government almost unanimously passed a law making cryptocurrencies legal and establishing rules for them in September 2021.  In addition, the country is making more explicit statements about where it wants to be in the cryptocurrency world in the future. According to the New York Times, the country only established a Ministry of Digital Transformation two years ago. “The goal is to become one of the leading jurisdictions for crypto companies,” said Alexander Bornyakov, deputy minister. We believe that this is the new economy, the way things will be in the future, and something that will aid in the growth of our economy. Furthermore, according to other reports, the country will be a “dual currency state” by 2023, meaning that both Bitcoin and the hryvnia will be considered legal tenders.

Paraguay

Soon after El Salvador announced that it would pass legislation making Bitcoin a legal tender, a member of Paraguay’s Chamber of Deputies introduced a bill to legalize and regulate cryptocurrencies.  Carlitos Rejala, the same politician, has announced his intention to run for president in 2023. Part of his plan will include making Bitcoin the country’s official currency. It’s unclear whether this will happen, but if Rejala’s ideas catch on, Paraguay could be on the verge of adopting Bitcoin.

Where Does The United States Stand In This Issue?

According to a YouGov survey, while 27 percent of Americans want their government to accept Bitcoin as a legal tender, this is extremely unlikely to happen. The US government believes that the unregulated cryptocurrency market is more likely to cause harm than good. This is since the US government has no control over how it is used or whether it is taxed because it is an unregulated market. The Federal Reserve Board may also consider creating its digital currency. The cryptocurrency the United States issues would be a digital currency that has the backing of the Federal Reserve. However, even if Congress approves of the idea, it is unlikely that there will be an implementation soon.

   

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