The International Monetary Fund (IMF) on Tuesday called on El Salvador to change course and stop using Bitcoin as legal tender, citing “large risks” posed by the cryptocurrency.
The bank “urged the authorities to narrow the scope of the Bitcoin law by removing Bitcoin’s legal tender status.
El Salvador in September became the first country in the world to embrace the digital money, making it legal to use in all transactions, alongside the US dollar.
What is the issue:
El Salvador in September became the first country in the world to embrace the digital money, making it legal to use in all transactions, alongside the US dollar.
The decision led to large-scale protests over fears it would bring instability and inflation to the impoverished Latin American country
Bitcoin has lost about half its value since November.
The IMF has warned President Nayib Bukele of the risks the cryptocurrency poses to the country, stressing that it would be difficult to get a loan from the institution.
They highlighted the “large risks associated with the use of Bitcoin on financial stability, financial integrity and consumer protection” and with issuing Bitcoin-backed bonds.
Negative impact of government’s decision:
Protests against Bitcoin
More than 200 new cash machines are being installed across the country to enable dollars to be converted into Bitcoin.
Recent protests in the capital, San Salvador, have demonstrated a lack of confidence among citizens who feel the measure is a distraction from the government’s controversial rule.
Government control
Many governments around the world, such as China, are going in the opposite direction and attempting to restrict the adoption of cryptocurrency with increased regulations.
However, former El Salvadorian resident and now US-based Bitcoin enthusiast Gerson Martinez thinks El Salvador won’t be the last country to adopt Bitcoin.
“It’s hard to describe the hope and joy it makes me feel that our country is the first domino to fall in this inevitable transition. What a time to be a Salvadoran,” he said.
What is bitcoin:
Bitcoin, often described as a cryptocurrency, a virtual currency or a digital currency – is a type of money that is completely virtual.
It’s like an online version of cash. You can use it to buy products and services, but not many shops accept Bitcoin yet and some countries have banned it altogether.
However, some companies are beginning to buy into its growing influence.
In October last year, for example, the online payment service, PayPal, announced that it would be allowing its customers to buy and sell Bitcoin.
The physical Bitcoins you see in photos are a novelty. They would be worthless without the private codes printed inside them.
How does bitcoin work:
Each Bitcoin is basically a computer file which is stored in a ‘digital wallet’ app on a smartphone or computer.
People can send Bitcoins (or part of one) to your digital wallet, and you can send Bitcoins to other people.
Every single transaction is recorded in a public list called the blockchain.
This makes it possible to trace the history of Bitcoins to stop people from spending coins they do not own, making copies or undo-ing transactions.
About El Salvador:
Capital – San Salvador
Currency – Bitcoin and US dollar
President – Nayib Bukele
Vice president – Félix Ulloa
About IMF:
The International Monetary Fund(IMF) is an international financial institution, headquartered in Washington, D.C., consisting of 190 countries.
Its mission is “working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.