The costs for the production of Bitcoin as a legal means of payment exceed the potential benefit - regulation

The International Monetary Fund (IMF) has announced that El Salvador has the costs for the implementation of the country's Bitcoin law, which makes cryptocurrency a legal means of payment, exceed potential benefits. The IMF has also asked EL Salvador to dissolve the faithfulness fund "Fidebitcoin" and to start charging fees for services that are provided by the government's digital wallet.

recommendations of the IMF for El Salvador

The International Monetary Fund (IMF) published a 114-page report on El Salvador on Friday with a special section on Bitcoin as a legal means of payment and the digital wallet Chivo "as a new means of payment".

el Salvador was the first country to introduce Bitcoin in September last year as an official currency with status as a legal means of payment next to the US dollar. The IMF report notes that the chivo letter bag of the Salvadorian government, which can be used for dollars and can be used bitcoin has "one Significant number of customers accumulated, 3.8 million, although it is unclear how many Bitcoin use in their transactions or keep credit in Bitcoin ”.

The report explains that under the Bitcoin law of El Salvador “a $ 150 million trusted trust fund, Fidebitcoin, was set up to ensure the conversion” between Bitcoin and dollar. The funds were primarily used to finance the Chivo start, according to the report.

according to IWF:

In the short term, the actual costs for the implementation of Chivo and the operationalization of the Bitcoin Act exceed the potential benefit.

The IMF estimates that the short-term household costs for 2021-2022 are 1 % of GDP, while short-term profits can be up to ¼ % of the GDP per year.

The report also outlines the risks of the introduction of Bitcoin as a legal means of payment and states:

By introducing Bitcoin as a legal means of payment, considerable risks for financial stability, financial and market integrity and consumer protection are introduced ... If the use of Bitcoin increases significantly, this can endanger the dollarization regime that has proven to be a successful nominal anchor for economy.

In order to "counteract the risks from the use of Bitcoin as a legal means of payment", the IWF recommends "to restrict the area of application of the Bitcoin law by at least withdrawing Bitcoin the status of a legal means of payment and making its strictly voluntary nature for all types of transactions.

The International Monetary Fund added that "three other areas require immediate correction measures". Two of the areas are "development of a strict regulatory supervision of Chivo" and "securing the financial stability and adaptation of the regulatory framework for banks".

The third area that requires immediate correction measures is the "containment of household costs". In addition, the IMF:

employee… to make Chivo a self -financed company (to collect fees for services provided). The employees also recommend ending the subsidy of $ 30 for each new Chivo user and liquidating Fidebitcoin-to repay unused funds to the Ministry of Finance.

What do you think of the IMF recommendations for El Salvador? Let us know in the comment area below.

Kevin Helms

As a student of Austrian economics, Kevin Bitcoin discovered in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open source systems, network effects and the interface between economy and cryptography.

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