El Salvador adopted bitcoin as legal tender in the country, and this could throw a spanner in negotiations with the IMF for a $1 billion aid program.

The IMF warned Thursday that El Salvador’s move to adopt bitcoin as a legal currency in parallel with the US dollar could have various economic and legal repercussions. El Salvador’s Congress this week approved a proposal to adopt bitcoin as legal tender, a historic and “world-first” move that sparked a sharp rally in the price of the cryptocurrency. (Reuters)

El Salvador’s macro economics could be clouded

“Adoption of bitcoin as legal tender raises a number of macroeconomic, financial and legal issues that require very careful analysis,” said Gerry Rice, an IMF spokesman, during a scheduled press briefing.

“What we have said in the past, in general, is that crypto assets can pose significant risks, and effective regulatory measures are very important when dealing with them,” he said.

A failure of El Salvador’s talks with the IMF could damage its economic fundamentals, according to analysts. The country already runs a sizable fiscal deficit.

“We see the bitcoin headlines out of El Salvador as noise that could complicate discussions with the IMF,” said Citi’s Donato Guarino in a note to clients.

The developments pressured the prices of El Salvador bonds with the 2027 and 2052 maturities each down 1 cent on Thursday.

Volcanic mining

El Salvador’s President added a volcanic twist to El Salvador’s tryst with bitcoin on Wednesday.

He reportedly has instructed state-owned geothermal electric firm LaGeo to develop a plan to offer bitcoin mining facilities using renewable energy from the country’s volcanoes.

“Our engineers just informed me that they dug a new well, that will provide approximately 95MW of 100% clean, 0 emissions geothermal energy from our volcanoes,” Bukele said.

“Starting to design a full #Bitcoin mining hub around it,” he added.

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