The battle between the International Monetary Fund (IMF) and El Salvador continues, especially over the adoption of Bitcoin as a legal tender.
The IMF has long helped El Salvador with favorable lending, as the country is still developing and has had financial problems in the past. Probably, the fact that, in theory, El Salvador could have found an alternative, does not please these “lenders of last resort”.
In addition, the IMF has long voiced its opposition to Bitcoin adoption in general, while in June it expressed concern over El Salvador’s decision.
Those concerns have so far proved irrelevant, but Bitcoin has only been legal tender in the country for two and a half months.
In June, the IMF not only raised concerns, but its Director of Communications, Gerry Rice, pointing out that the Fund had provided the country with an emergency loan last year to help it deal with the health emergency, actually questioned whether a new loan would be granted.
The tax-free Bitcoin city.
In addition, a few days ago the president of El Salvador even announced the idea of creating a new city virtually tax-free, except for VAT, thanks to Bitcoin, and that must have increased the concerns of the IMF.
In fact, the next day it published a release reiterating their concerns about Bitcoin becoming legal tender.
IMF concerns about El Salvador’s choice of Bitcoin.
In the document, the IMF writes that the medium-term uncertainty regarding the issuance of sovereign bonds to buy Bitcoin and finance investments in infrastructure is very high and, in this respect, it is very likely to be right, considering not only that the value of the Bitcoin is volatile, but there is also no certainty that it will grow.
It also raises a question regarding supervision, namely whether the country is able to comply with anti-money laundering regulations.
While acknowledging that digital payment systems like Chivo (the government’s Bitcoin wallet based on the Lightning Network) have the potential to make payments more efficient, improve financial inclusion and support growth, the IMF points out the risks to protection financial integrity and financial stability due to the high volatility of the real value of Bitcoin.
The IMF also claims that its use gives rise to contingent tax liabilities, which is why they argue that Bitcoin should not be used as legal tender.
In fact, they are explicitly asking El Salvador to change its laws and the operation of the Chivo wallet.
The power of the International Monetary Fund.
This request has a strong anti-democratic flavor and seems to indicate that the Fund presumes to have power over the laws of sovereign countries. However, there is no evidence that, at least in theory, the IMF has such powers. One can even go further and assume that it is trying to acquire them, in a way that is totally alien to common democratic practices.
In light of all this, it is very difficult to imagine that the IMF’s real objective is to help Salvadorans, while it seems more likely that it is trying to use its power to influence even the policy of a state that, in theory, should be free to in this respect.
Furthermore, the IMF is not a democratic body and no one has explicitly authorized it to impose changes in its own laws or in the laws of other countries. Although formally controlled by the governments of 190 states, in reality its policies are often heavily influenced by those few states with strong political and financial power, so much so that it has never had a non-European director.
For all intents and purposes, this appears to be a kind of war waged without physical weapons, but with money, between an extremely powerful global financial system and a small sovereign country in Central America, which has decided to try other paths. As risky, if not reckless, these paths may be, the country must be free to follow them, even at the cost of losing.
In other words, the IMF should not have the power to block the democratic policies of a free country, although in the case of El Salvador, doubts have arisen about the real democratic character of its system of government, so much so that its Democratic Index is not that of a true democracy, but only a so-called “hybrid regime”.