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19 June 2021
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IMF on Bitcoin: concerns over El Salvador’s decision

The International Monetary Fund (IMF) has raised doubts about El Salvador’s decision to declare bitcoin legal tender in the country.

During a press conference held yesterday, IMF Director of Communications Gerry Rice recalled that last year the Fund granted an emergency loan to El Salvador to help the country deal with the health emergency due to the pandemic, as has happened for many other countries, and now the El Salvador authorities have requested another loan to support their economic program.

A dedicated Fund team is discussing this request with the Salvadoran authorities, but a decision has not yet been made.

After which he declared:

“On the issue of bitcoin, I would say that the adoption of bitcoin as legal tender raises a number of macroeconomic, financial and legal issues that require very careful analysis. We are therefore closely monitoring developments and will continue our consultations with the authorities.

In that context, I can tell you that the IMF team will meet the President of El Salvador today. So I don’t want to anticipate the meeting with the president with further comments. But once again, the team will communicate further at the end of this mission ”.

The loan to El Salvador and the Bitcoin turning point: the IMF’s doubts

It is quite clear that the Fund intends to link the two things, namely the choice of the country to declare bitcoin legal tender , and the discussion regarding the new loan application.

Rice added that the IMF still believes that cryptocurrencies can carry significant risks , and that it would be important to take effective regulatory measures in this regard.

The fact that he has not distinguished between cryptocurrencies in general, and Bitcoin in particular, suggests that Rice is not particularly well versed in similar issues.

Even the fact that he wanted to avoid giving a real judgment in this regard, bringing instead the discussion on the negotiations in progress between the Fund and the authorities of the country, suggests that he is much more interested in the latter than in the underlying question. , i.e. the use of BTC in the country as a legal tender means of payment .

However, it should be added that foreign investors, probably worried about the outcome of these negotiations with the IMF, are asking for ever higher premiums for acquiring and holding Salvadoran debt, so much so that the spread of the country’s bonds over US ones (JPEGDELSR) yesterday it increased by 61 basis points to 683, the highest level since February 22, while in the last 20 sessions it had never moved by more than 2 basis points individually. At stake is a loan of almost $ 1 billion , which at this point could also be called into question.

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