The cryptocurrency world rejoiced this week after El Salvador became the first country to require businesses to accept bitcoin as a form of payment alongside the U.S. dollar. But on Thursday, the International Monetary Fund weighed in with a more somber tone, warning against the pitfalls of using the token as an official currency.
“Adoption of bitcoin as legal tender raises a number of macroeconomic, financial, and legal issues that require very careful analysis, so we are following developments closely and will continue our consultation with authorities,” IMF spokesperson Gerry Rice said Thursday. “Crypto assets can pose significant risks, and effective regulatory measures are very important when dealing with them.”
On Wednesday, El Salvador lawmakers approved a proposal from President Nayib Bukele to enable bitcoin to be used to purchase goods and pay bank loans and taxes. According to Bukele, the move aims to benefit members of its population that lack access to financial services. The country is among the poorest in Central America.
However, analysts and skeptics have cautioned that the move could throw El Salvador into further financial instability as bitcoin, like other cryptocurrencies, remains precipitously volatile. The recent comments from the IMF appear to mirror their concerns.
An IMF team that’s been communicating with the country about a potential credit program is set to meet with Bukele Thursday.
Earlier this week, Bukele also said he had ordered a state-owned geothermal electricity company to offer facilities for cryptocurrency mining, which would be powered by renewable resources from local volcanoes.