Bank of America backs El Salvador Bitcoin law but IMF warns consequences 'could be dire'

El Salvador President Nayib Bukele first introduced the move to declare Bitcoin as legal tender in the country in June and is now expecting the leading cryptocurrency to be adopted in early September following the proposal approval. The new legislation has attracted backlash from the country’s opposition party, as well as the IMF. However, Bank of America, one of the oldest financial institutions in the United States, is showing support for the BTC move.

Bank of America highlights implications of Bitcoin as legal tender

Bank of America stated that there are some key opportunities that Bitcoin can offer to the Latin American country. A major advantage seen from the bank’s perspective is that around 70% of citizens in El Salvador do not have access to a bank account and financial services.

Bitcoin could further introduce a lowered cost of remittances, which was President Bukele’s primary goal. Currently, remittances from abroad comprise one-fifth of El Salvador’s gross domestic product. Salvadorans would, in turn, be able to receive a higher disposable income.

While El Salvador also plans to leverage its geothermal energy from its volcanoes to mine Bitcoin, Bukele stated that a mining hub is being designed to use cost-effective, clean and renewable energy to power the operation.

El Salvador could further attract foreign direct investment flows in its aim to become a major Bitcoin mining hub. 

Bank of America further highlighted that another positive implication of the adoption of Bitcoin is financial digitalization and that democratizing access to electronic payments has a progressive touch.

However, not everyone agrees with Bank of America. The International Monetary Fund (IMF) warns that there could be “dire consequences” of adopting Bitcoin as a national currency. Two IMF officials stated that any country granting cryptocurrencies legal tender status could be risking domestic prices becoming highly unstable. 

The IMF believes that cryptocurrencies are closely linked with money laundering and the financing of terrorism and have issues with macroeconomic stability and the environment.

Recently, ratings agency Moody’s Investors Service downgraded the El Salvador government’s rating due to the uncertainty around fresh funding from the IMF.

In late June, El Salvador’s opposition party sued the government over the Bitcoin law, stating that it was unconstitutional. About 80% of the country’s citizens support the argument, expressing that the new law did not consider harmful effects.