The directors of the International Monetary Fund (IMF) requested that El Salvador “limit the power” of the Bitcoin Law. It is done by withdrawing Bitcoin’s legal tender status on January 25.
The IMF warned that implementing a cryptocurrency, as the Central American country has involves significant implications. Affecting economic and market credibility, financial stability, and user security.
Why did the International Monetary Fund (IMF) force El Salvador to end its bitcoin exercise?
“Guaranteeing exchange rate stability” is among the IMF’s goals. According to Gavin Brown, associate professor of financial technology at the University of Liverpool. Bitcoin and virtual currencies in total have been extremely volatile. As evidenced by the notable 50% drop in market values from November’s all-time highs. Bitcoin-like currencies should be avoided according to the International Monetary Fund (IMF).
IMF Other motives
However, this may not be the entire story. Such a country has decided to use Bitcoin as they have. The real consequences are not a big problem in and of themselves, Brown said. If El Salvador succeeds, the message it sends to other countries is critical.
Moreover, over 65 countries currently have their currencies pegged to the US dollar. According to Brown, combined with the dollarization of oil and the dominance of the US economy, guaranteed the dollar’s supremacy. Also, Bitcoin and El Salvador aren’t currently posing a direct danger. However, the keyword is currently.
Others were unsurprised by the International Monetary Fund’s recommendation that the country stop using legal cash. For a variety of reasons, the International Monetary Fund (IMF) is demanding this of El Salvador, according to David Tawil, the president and co-founder of ProChain Capital. According to Tawil, the world’s creditor of last resort to independent countries. The IMF prefers to have fewer, not more, borrowers. However, he speculated, there could be something more self-serving at play. Tawil noted that it’s probable that Bitcoin becomes a powerful global reserve currency.
Pioneer or Renegade?
“I do not see any indication that Bitcoin implementation has been successful,” said John Hawkins. He is senior lecturer at the University of Canberra’s Canberra School of Politics, Economics, and Society. To this end, I’m pessimistic about the likelihood of many administrations actually following through.
One possible exception, according to Hawkins, could be nations where hyperinflation. It has caused a lack of trust in the country’s currency. An example is Venezuela. Although even there, dollarization or a monetary authority would be a better alternative than implementing Bitcoin.
President Bukele promised to boost El Salvador’s GDP by 25%. However, it has not occurred, nor has there been a spike in foreign investment in El Salvador after BTC became a legal currency in September. The statement is according to Hawkins.
The International Monetary Fund has taken a very harsh approach” to cryptocurrency-related products. Although current market instability affects all industries, not just digital currencies. Moreover, El Salvador’s relationship with the United States has deteriorated. It could be considered as a contributing factor.
The current decline in the value of Bitcoin enables the IMF to say ‘I told you so’. Also, have extra charge force behind its perception, Tawil said. He added that IMF has been skeptical of the El Salvador BTC endeavour from the start.
Throughout the latest crypto bear market, Bukele was seen buying more BTC Following day, I tweeted about it. “Most people buy when the price is rising. However, the smartest and most lucrative time to buy is when the price is down. It’s not rocket science.”
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