Global financial body, the International Monetary Fund has informed the public that bitcoin constitutes a high risk to consumers.
In giving this warning, the Monetary Fund made a reference to El Salvador’s recently announced plan to make the coin a legal tender, as the country sets plans to erupt a Bitcoin City which is funded by cryptocurrencies.
On Monday, the IMF released a statement where it referred to the decision made by El Salvador to make bitcoin a legal tender as risky. This was said in spite of the Fund’s admission that cryptocurrencies and other digital forms of money possess the potential to make payment systems much more efficient.
According to the financial body, bitcoin’s high rate volatility means its use as a legal tender opens up serious risks to financial integrity, consumer protection and financial stability. The body then encouraged the strengthening of the supervision and regulation of the new payment system.
In September 2020, El Salvador passed a law that granted bitcoin the status of an official legal tender side by side with the US dollar. This made El Salvador the first country in the world to recognize cryptocurrency officially.
Since then, El Salvador’s government has supported an e-wallet system known as Chivo, which allows El Salvador residents to engage in payments with bitcoin and convert the cryptocurrency to US dollars.
The financial body recognized the benefits of the system, which could augment financial inclusion, while supporting financial growth. The body however called for more legal defences for consumers, to protect them while countering money laundering and the financing of terrorism.
This warning arrived merely days after El Salvador revealed its plans to build the world’s very first ‘Bitcoin City’ which will receive its initial funding from bonds backed by cryptocurrencies. The city will contain commercial and residential areas, airports, restaurants, entertainment venues, and other amenities which are common to a metropolis.
It is still in the conceptual stage but the first bond offering is set for 2022, with construction to begin about two months after financing has been secured for the construction.