El Salvador has been advised by the global monetary watchdog to exercise caution in expanding government exposure to Bitcoin (BTC) due to the “speculative nature” of crypto markets.
A Feb. 10 statement from the International Monetary Fund (IMF) emphasized that Bitcoin’s risks in El Salvador have “not materialized” yet due to its “limited” use so far, after IMF staff visited the country last week.
It was suggested that El Salvador address Bitcoin’s risk to the country’s financial integrity and stability, fiscal sustainability and consumer protection, noting that Bitcoin’s use “could grow” given it has been recognised as legal tender in the country since Sept. 2021.
El Salvador was urged to to rethink its decision to issue tokenized bonds, as the IMF stated the idea should be “eschewed” due to its legal and financial risks. The statement noted:
“Given the legal risks, fiscal fragility and largely speculative nature of crypto markets, the authorities should reconsider their plans to expand government exposures to Bitcoin, including by issuing tokenized bonds.”
The IMF also emphasized the importance of “greater transparency” from the El Salvadoran government regarding both its Bitcoin transactions, and the “financial situation” of its state-owned Bitcoin wallet, the Chivo wallet.
This comes after recent news that a legal framework for a Bitcoin-backed bond in El Salvador, known as the “Volcano bond,” was established on Jan. 11.
The El Salvadoran government said that these bonds will be used to pay down sovereign debt and fund the construction of its proposed “Bitcoin City.”
Bitcoin City is part of El Salvador’s plan to continue attracting crypto investors, with it previously being noted that a priority for the country in 2023 is to address any possible cryptocurrency-related criminal activity.
Guillermo Contreras, CEO of DitoBanx, previously told Cointelegraph on Jan. 6 that the opening of the National Bitcoin Office in El Salvador will function as “a central entity” to deal with these issues.