The executive board of the International Monetary Fund recommended that El Salvador discontinue the use of bitcoin (BTC) as legal tender in in the country due to the financial risks and liabilities created.
The recommendation came in a report issued on Tuesday following bilateral discussions with El Salvador about its economy. El Salvador has been in negotiations with the IMF for a $1.3 billion loan.
IMF directors “stressed that there are large risks associated with the use of bitcoin on financial stability, financial integrity and consumer protection, as well as the associated fiscal contingent liabilities,” according to the report.
Directors also “urged the authorities to narrow the scope of the Bitcoin Law by removing bitcoin’s legal tender status. Some directors also expressed concern over the risks associated with issuing bitcoin-backed bonds.”
In November, IMF staff said bitcoin should not be used as legal tender in El Salvador and urged the Central American country to strengthen the regulation and supervision of its newly established crypto payment ecosystem.
El Salvador adopted bitcoin as legal tender in September and its president, Nayib Bukele, has become a vocal proponent of the cryptocurrency.
The country has been accumulating bitcoin and recently bought 410 more bitcoins, reaching more than 1,500 BTC held. El Salvador also plans to issue a $1 billion bitcoin bond this year that will be 10 years in duration and U.S.-dollar denominated.
This is a developing story and will be updated.
UPDATE (Jan. 25, 20:10 UTC): Added background in fourth bullet point.
UPDATE (Jan. 25, 20:35 UTC): Added El Salvador's loan negotiations with the IMF and details about its bitcoin holdings and bond plans.