El Salvador’s adoption of bitcoin as a country’s currency has alarmed the governor of the Bank of England, the nation’s central bank. Noting a recent warning from the International Monetary Fund (IMF) regarding bitcoin’s adoption as legal tender, the governor said what would concern him most is whether the residents of El Salvador know the nature and volatility of the currency they possess.
During a speech to the Cambridge University student union on Thursday, Bank of England Governor Andrew Bailey expressed concern about bitcoin to be used as legal cash in El Salvador, saying that customers “would almost certainly be caught out by its volatility.” Bailey said:
“I am concerned that a country will accept it as its legal tender. What concerns me the most is if El Salvador’s population are aware of the nature and volatility of their currency.”
In September, El Salvador passed legislation making bitcoin legal cash alongside the US dollar for all products and services in the small Central American country.
The International Monetary Fund (IMF) is unhappy with El Salvador’s decision to make Bitcoin legal tender, according to Governor Bailey.
Last Thursday, the International Monetary Fund cautioned El Salvador that bitcoin should not be used as legal money. Noting bitcoin’s high price volatility the Fund claimed that using BTC as a legal tender implies major dangers to consumer safety, financial transparency, and financial stability. According to the Fund, its use also creates fiscal contingent liabilities.
El Salvador’s president, Nayib Bukele, proposed a plan to develop the world’s first “bitcoin city” generated by a volcano and backed by bitcoin bonds the day before the IMF issued its warning.
El Salvador purchased 100 more bitcoins ignoring the IMF’s warning, taking full advantage of Friday’s crypto sell-offs after rumors of a new Covid-19 type.
According to him, the BOE was also considering developing its own digital currency system to promote smooth online payments and provide clients with a secure and technologically advanced way to store cash.
There is a solid justification for digital currencies, but they must be stable, especially if they are used for payments, in our opinion. This isn’t the case with crypto assets.
In September, El Salvador became the first nation to accept bitcoin as legal tender. The government of President Nayib Bukele argues that this will offer many Salvadorans for the first time access to banking services and save $400 million in fees on transfers sent home from abroad each year.
According to AFP, a majority of El Salvador’s 6.5 million people oppose the notion and will continue to use the US dollar, which has been the country’s official currency for the past 20 years.
The Salvadoran president reacted to the Bank of England governor’s worries on Twitter on Saturday.
“Is the Bank of England worried with El Salvador’s adoption of bitcoin? Really? I suppose the Bank of England is genuinely concerned about our people’s well-being. Right? They’ve always been concerned about our people, after all. Always gotta admire the Bank of England. I’m genuinely concerned about the Bank of England producing money out of thin air.”