A spokesperson for the IMF has said that El Salvador’s decision to make bitcoin legal tender raises several issues that will require careful analysis.
The International Monetary Fund said in a statement on June 10 that it foresees a number of “macroeconomic, financial and legal issues” with El Salvador’s decision to make bitcoin legal tender. IMF spokesperson Gerry Rice, during a press briefing, said that the IMF would follow the developments closely and continue consultations with authorities.
The IMF will also speak to Bukele to discuss the law, and the country is reportedly seeking a program that is worth nearly $1 billion. The country’s decision to recognize bitcoin as legal tender set off a string of discussions in both the crypto and traditional finance worlds.
IMF foresees bitcoin legalization issues
El Salvador’s President Nayib Bukele announced the decision last week, and quickly sent the law to Congress for ratification. Bitcoin will not be taxed for capital gains, and the country will also attract entrepreneurs by handing them permanent residency. Citizens will also be able to pay taxes in the asset.
Bukele has said that making bitcoin legal tender will have a range of benefits for citizens, including fostering financial inclusion and improving remittances. Bukele has gone on to state that merchants cannot refuse payments in bitcoin,
“If you go to a McDonald’s or whatever, they cannot say we’re not going to take your bitcoin, they have to take it by law because it’s a legal tender.”
The country will also use geothermal energy from volcanoes to power bitcoin mining facilities. This comes as the talking point of bitcoin’s power consumption takes center stage.
This is the first of its kind in the world, and it has rightly stirred other countries into thinking about the ramifications. The IMF has not offered more details on what the issues might be, but time will tell how other countries respond to this development.
What impact will El Salvador’s decision have?
It’s hard to say how much of an impact El Salvador’s decision will have. On the one hand, it could act as a catalyst for other countries doing the same. On the other hand, some governments could point to it as criticism if the experiment fails to meet expectations or meets trouble.
At the moment, countries are flocking towards the idea of central bank digital currencies (CBDC), perhaps partly inspired by this development. Governments will obviously want to retain as much sovereignty as possible, but stopping bitcoin is virtually impossible.
What we can expect is greater regulation, one that imposes strict limitations on what can and can’t be done. The latter half of 2021 should see several such events as countries like the U.S. increasingly discussing regulations.