IMF urges El Salvador to remove Bitcoin's legal tender status

The International Monetary Fund's board "urged" El Salvador to do away with its move to make bitcoin a legal tender, while calling for strict regulation of the country's e-wallet.

IMF board members "urged the authorities to narrow the scope of the Bitcoin law by removing bitcoin's legal tender status," the IMF said in a Tuesday statement following a yearly consultation.

Salvadoran Finance Minister Alejandro Zelaya had no comment.

In September, El Salvador became the first country to make bitcoin a legal tender, alongside the U.S. dollar. Its economy has been dollarized for two decades.

The IMF has since repeatedly called for the move to be reversed, citing financial, economic and legal concerns.

The IMF board said it was important to boost financial inclusion and that the Chivo e-wallet, the government's bitcoin exchange, could play this role.

However, they see "the need for strict regulation and oversight of the new ecosystem."

Some board members were also concerned about the risks associated with El Salvador's expected issuance of bitcoin-linked bonds, the IMF said.

The country is preparing the issuance of $1 billion in bonds, half of which would be used to purchase bitcoin. The government bets that the exposure to bitcoin gains will entice investors who would receive a dollar yield of 6.5%, much lower that what the market currently prices for similar Salvadoran government debt, closer to 17%.

In its statement, the IMF also warned that at current debt spending levels El Salvador's public debt could rise to about 96% of GDP in 2026, calling it an "unsustainable path."