![IMF Tells El Salvador: Costs of Making Bitcoin Legal Tender Exceed Potential Benefits IMF Tells El Salvador: Costs of Making Bitcoin Legal Tender Exceed Potential Benefits](https://static.news.bitcoin.com/wp-content/uploads/2022/01/imf-1.jpg)
Users of the Salvadoran government’s Chivo wallet will not be able to see frozen price quotes until the feature has been removed to deter arbitrage scalpers.
The Salvadoran government has moved to prevent users of its Chivo digital wallet from gaming the app’s price freeze feature to glean risk-free profits through arbitrage.
On Oct. 19, Chivo’s Twitter account announced that wallet users will not be able to see the reference price provided for trades executed using the price freeze feature — which allows traders to retain the Bitcoin (BTC) price quoted by the app for up to one minute.
Chivo tweeted that opportunistic traders have been using the price freeze feature to scalp for arbitrage across other cryptocurrency trading platforms globally during periods of significant price volatility for Bitcoin. The frozen price feature gave traders an opportunity to take advantage of price gaps in other exchange rates while quickly using the lightning network to move assets, Chivo explained.
“The 'scalping' carried out consisted of taking advantage of the fact that Chivo kept the rate frozen for 1 minute and taking advantage of that minute to compare the rate with other exchanges and see if the price of Bitcoin went down or up.”
Despite high-frequency scalping comprising a legal form of trading, Chivo describes traders who used Chivo’s frozen prices to arbitrage against real-time exchanges as being extracting potentially “endless” profits through “fraud.”
Looking forward, Chivo plans to remove the price feature and offer real-time price references for Bitcoin traders using its app.
Related: El Salvador ranks third in global Bitcoin ATM installations, data finds
On September 7, El Salvador enacted its controversial Bitcoin Law recognizing BTC as legal tender nationwide.
Despite critics highlighting the low rates of digital and blockchain literacy among Salvadorans in the run up to the law taking effect, the legislation appears to have fostered widespread Bitcoin adoption across
Salvadorans now appear to be exchanging their U.S. dollar savings for BTC at an accelerating pace, with President Nayib Bukele sharing that Chivo had recorded 24,076 remittance requests worth more than $3 million on Oct. 14.
El Salvador also announced its plans to invest part of the $4 million worth of profits from Chivo’s Bitcoin trust to construct a new veterinary hospital in the local capital of San Salvador during Oct. 10.
S&P Global believes El Salvador’s recognition of Bitcoin as legal tender has brought “immediate negative implications” for its credit rating.
Credit rating agency Standard and Poor (S&P) Global believes the country of El Salvador has severely harmed its credit rating after enacting its Bitcoin Law recognizing BTC as legal tender nationwide on Sept. 7.
According to a Sept. 16 report from Reuters, El Salvador’s Bitcoin embrace exposes its economy to significant financial risks and could pose challenges for the country’s lending industry.
The credit agency also believes the move could also dampen El Salvador’s chances of securing a $1 billion loan agreement it is seeking from the International Monetary Fund (IMF).
"The risks associated with the adoption of bitcoin as legal tender in El Salvador seem to outweigh its potential benefits," S&P said, emphasizing the “immediate negative implications” of the Bitcoin Law for the country’s credit rating.
International credit rating agencies offer a grim outlook for El Salvador’s ranking amid the lead-up to the BTC adoption.
Prior to Salvadoran President Nayib Bukele announced his intention for the country to recognize BTC as legal tender in June of this year, Fitch had stamped El Salvador with a B- in April 2020 — assessing the country as high risk with a negative outlook.
S&P’s last assessed El Salvador’s credit score as being a B- as of Dec. 28, 2018, suggesting it may be due for an update given the dramatic shift in the nation’s monetary policy.
While president Nayib Bukele maintains high approval ratings among the Salvadoran populace, his leadership and government have faced backlash enacting the Bitcoin Law despite the country’s low rates of crypto-literacy.
To my English-speaking Twitter friends: This 15/9/21, El Salvador did not celebrate 200 years of independence. Instead, we filled the streets to protest the breaking of our democracy, rule of law, and an incipient dictatorship. THIS is why we marched. #El15Marchamos pic.twitter.com/wyf1B4QzgZ
— cg (@NorteSur7) September 16, 2021
Related: Protesters burn Bitcoin ATM as part of demonstration against El Salvador president
There also appears to be push back abroad from financial agencies such as the World Bank and IMF, who have both reiterated cautious sentiments this month regarding the adoption of BTC as legal tender.
IMF spokesman Gerry Rice stated in a press briefing on Sept. 16 that while the fund is still in discussions with El Salvador over a potential support program, it hasn’t changed its stance that the consequences of BTC adoption could be “dire.”
“The potential of an IMF program for El Salvador is under discussion. Again the objectives of that are clear: growth, financial stability and so on. On the specific Bitcoin issue, I think we’ve been fairly clear in our public statements,” Rice said.
On Sept. 7 a World Bank spokesperson told Reuters that “while the government did approach us for assistance on Bitcoin, this is not something the World Bank can support given the environmental and transparency shortcomings.”