In a recent report, the IMF praises the way El Salvador handled the COVID-19 situation and announces that their economy grew 10% in 2021. The International Monetary Fund also recognizes El Salvador’s government efforts to reduce crime, “diversify the energy matrix, foster economic diversification, and enhance financial inclusion.” However, when it comes to Bitcoin, the IMF is completely against it. As they should. Because Bitcoin renders the IMF irrelevant.
But first, let’s learn what the report titled “El Salvador: Staff Concluding Statement of the 2021 Article IV Mission” is about:
“A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF’s Articles of Agreement.”
Anyway, let’s go to the IMF’s wacky opinions about Bitcoin.
BTC price chart for 11/23/2021 on Oanda | Source: BTC/USD on TradingView.com
What Does The IMF Think About Bitcoin As Legal Tender?
After praising El Salvador’s efforts to foster “financial inclusion and raise growth,” the IMF attacks the very tool that the country’s government is using to accomplish that.
“Given Bitcoin’s high price volatility, its use as a legal tender entails significant risks to consumer protection, financial integrity, and financial stability. Its use also gives rise to fiscal contingent liabilities. Because of those risks, Bitcoin should not be used as a legal tender. Staff recommends narrowing the scope of the Bitcoin law and urges strengthening the regulation and supervision of the new payment ecosystem.”
Translation: The IMF can’t even think of one good reason for Bitcoin not to be legal tender. One Bitcoin is one Bitcoin. The cryptocurrency’s volatility is intrinsically related to the assets we compare it with. In this case, the US Dollar. It’s also important to remember that Bitcoin is legal tender in El Salvador ALONGSIDE the US Dollar. If people don’t want volatility, they can easily exchange all of their money into the other currency considered legal tender.
The IMF also conveniently ignores the fact that Bitcoin’s volatility can bring positive results for its users. And that their other option, the US Dollar, is going through an inflationary period like no other. Plus, when the US government prints more money, its citizens get certain benefits out of it. But El Salvador doesn’t. A Dollarized country that’s not in control of the money printer gets its purchasing power decreased by relentless inflation, but doesn’t get the airdrops and inorganic money artificially stimulating the economy.
Does The IMF Have Any Other Advice?
Of course, they do. First, they praise El Salvador’s efforts in financial inclusion. Then, the IMF recommends implementing the exact same measures that keep 70% of their population out of the financial system.
“Stronger regulation and oversight of the new payment ecosystem should be immediately implemented for consumer protection, anti-money laundering and counter financing of terrorism (AML/CFT), and risk management.”
Why are people in El Salvador unbanked? Do they think it’s by choice? Is the IMF unaware that their outdated and inefficient methods cause the bottleneck? Bad actors have incentives to bypass AML and KYC procedures. They do it with ease. Normal people can’t produce all those documents. And for banks, the cost of processing all that data makes acquiring a new client expensive. There are no incentives to serve the lower-income population.
“Recently announced plans to use the proceeds of new sovereign bond issuances to invest in Bitcoin, and the implications of trading more broadly in Bitcoin, will require a very careful analysis of implications for, and potential risks to, financial stability.”
The US Pauses Relations With El Salvador
In semi-related news, Reuters informs that U.S. Chargé d’Affaires Jean Manes said in local TV that relationships between the two countries are on hold. “Obviously we’re on a bit of a pause because the government of El Salvador is not giving a signal that it has an interest in our relationship,” she said. “On behalf of the White House, the State Department, we’ve offered a bridge, and the (Salvadoran) government decided not to take it. As far as we’re concerned, we’re interested in having the best relationship with El Salvador.”
Sure, Manes. That sounds totally believable. Nothing suspicious here.
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