El Salvador was the first country to embrace Bitcoin as legal money in 2021; note that the government had previously abandoned its own locally generated legal tender in 2001 in favor of the US Dollar. Although El-Salvador promotes cryptocurrency, its citizens aren’t always on board. Despite the scheme’s severe impact on El Salvador’s economy, it continues to be praised by many of the crypto community’s most influential observers. ARK Invest CEO Cathie Wood enthused in a recent interview about how Bitcoin usage has more than doubled the number of Salvadorans who have access to innovative financial services. Click here to visit website.
President Nayib Bukele has been warned by the IMF about the threats that cryptocurrencies offers to the country, highlighting that securing a loan from the agency would be difficult. The board’s directors have “urged the authorities to reduce the scope of the Bitcoin law by withdrawing Bitcoin’s legal tender status,” according to a statement. The statement emphasized the serious threats to financial stability, financial integrity, and consumer protection that adopting Bitcoin poses.
Why did the International Monetary Fund (IMF) tell El Salvador that its Bitcoin experiment was virtually over? Surely, this small country, with a GDP ranking of 104th in the world, poses no threat to the balance sheets of major banks. Furthermore, 70% of Salvadorans do not have access to banking services, and remittances from the United States account for one-fifth of the country’s GDP. According to some analysts, adopting Bitcoin (BTC) as legal cash might reduce the country’s reliance on the US dollar by cutting transfer costs, attracting foreign investment, or increasing local competitiveness.
The acceptance of Bitcoin as legal cash in El Salvador was billed as a way to encourage economic development and job creation, but it has had the opposite effect, dividing the country. Regardless, the President is pressing ahead with his plans, as it is clear that the main reason for their opposition is a lack of understanding of cryptocurrencies and how it operates. The Salvadoran government is working hard to make Bitcoin a legal tender not just in principle, but in practice as well.
The provision of low-interest Bitcoin (BTC)-backed loans to small and micro-businesses is next on the orange agenda. The loans’ specifics have yet to be revealed, but Monica Taher, a Salvadoran government official, spoke freely on Facebook Live Audio. “Bitcoin Loans at Lower Interest Rates” was the topic of discussion. She also told Cointelegraph that the Bitcoin microloans will give the unbanked access to digital money while also assisting them in building a credit history.
Part of the IMF statement stated that granting Bitcoin-backed loans, which President Bukele hopes to achieve for the benefit of small and medium-sized businesses in the country, has a high risk. Before Bukele made the announcement, the IMF had expressed reservations about the cryptocurrency’s acceptance. “The adoption of bitcoin as legal money creates a number of macroeconomic, financial, and legal challenges that will need to be thoroughly examined,” stated spokesman Gerry Rice.
The board of directors stated that the fund – IMF – supports the goal of “increasing financial inclusion,” which may be achieved through the country’s “chivo” e-wallet, but warned against the cryptocurrency’s exchange rate’s extreme volatility. The impact that cryptocurrencies can have on a country’s economy is undeniable.
Because this isn’t the complete picture, the IMF appears to have ulterior intentions. “The tangible implications of such a country swinging toward Bitcoin as they have,” Gavin Brown, associate professor of financial technology at the University of Liverpool, told Cointelegraph. He went on to argue that the IMF intervened because if El Salvador succeeds, it will establish a precedent for other countries.
“It’s possible that the IMF would be perceived as a lot less effective and useful if Bitcoin becomes a powerful global reserve currency,” ProChain Capital president and co-founder David Tawil told Cointelegraph.
DeVere CEO Nigel Green noted in an emailed press release that the IMF’s Bitcoin demands to El Salvador illustrate that the board is on the wrong side of history. The IMF’s headquarters are in Washington, D.C., and the United States is both a founding member and the fund’s largest donor. “The fortunes and interests of the IMF and the United States are, therefore, unarguably inexorably connected,” Brown told Cointelegraph.
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