JP Morgan Says El Salvador’s Bitcoin Adoption Could Compromise Negotiations With IMF

Only a few days after announcing the adoption of bitcoin as a legal tender by president Nayib Bukele of El Salvador, several financial analysts have expressed concerns over the impact of the decision on the country.

In a document shared by a Twitter user, JP Morgan noted that the move will have serious adverse effects on El Salvador’s economic stability.

The banking giant noted that there is a very little economic benefit that the country can derive from adopting bitcoin as a legal tender.

It said,

“As with the dollarization in the early-2000s, this move does not seem motivated by stability concerns, but rather is growth-oriented… But it is difficult to see any tangible economic benefits associated with adopting Bitcoin as a second form of legal tender and it may imperil negotiations with the IMF.”

Bitcoin Adoption Could Jeopardize El Salvador’s Relationship with IMF

JP Morgan noted that El Salvador’s recent move might hinder its relationship with the International Monetary Fund (IMF).

With El Salvador facing a potential $3.2 billion funding shortfall for 2021, the abrupt adoption of bitcoin could take down IMF programs.

The IMF serves as a gatekeeper for countries like El Salvador to gain access to external credit. The country is also reportedly negotiating with the IMF for a $1 billion funding project.

El Salvador’s Bitcoin Adoption

The Central American country had broken the internet when it revealed that it has adopted bitcoin as a parallel legal tender to the USD.

The country noted that it will follow up the growth-oriented move by insisting that bitcoin will serve as a means of payment for any economic transaction while the U.S. dollar will remain the major unit of account for its biometric system.

It automatically became the first country to adopt bitcoin as a legal tender,  a move that marks a turning point in the history of the cryptocurrency industry.

Meanwhile, the country’s action has brought about “freedom from fiat” for El-Salvador. This has been the sole brain behind the creation of bitcoin and other cryptocurrencies. Hopefully, in the not-so-distant future, other countries will follow suit.

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