El Salvador’s adoption of bitcoin a concern, says Bank of England chief Andrew Bailey

A general view shows the Bank of England in the City of London (Reuters/Hannah McKay)

Bank of England Governor Andrew Bailey on November 25 called El Salvador’s decision to adopt Bitcoin as its currency “concerning”, adding that consumers “will probably be caught out by its volatility”, Bloomberg has reported.

“It concerns me that a country would choose it as its national currency. What would worry me most of all is, do the citizens of El Salvador understand the nature and volatility of the currency they have,” he said while responding to questions during a Cambridge University students union.

Bailey added that the International Monetary Fund (IMF) was also unhappy with El Salvador. The IMF monitors risks to global financial markets.

BOE was also studying whether to create its own digital currency system to facilitate smooth online payments and give customers a secure and technology updated way to hold cash, he said.

“There is a strong case for digital currencies, but in our view, it has to be stable, particularly if it’s being used for payments. That is not true for crypto assets,” Bailey added.

El Salvador legalised bitcoin in September 2021, becoming the first to officially declare it legal tender. President Nayib Bukele’s government claims this will give many Salvadorans access to bank services for the first time and save some $400 million in fees on remittances sent home from abroad every year.

In June, El Salvador's parliament approved a law to allow the crypto money to be accepted as tender for all goods and services in the small Central American nation, along with the US dollar.

Opinion polls, however, have shown that a majority of El Salvador's 6.5 million people reject the idea and will continue using the US dollar, the country's legal currency for the last 20 years, AFP reported.

Economists and international bodies such as the World Bank, IMF and the Inter-American Development Bank have expressed concerns about El Salvador's bitcoin adoption.

Cryptocurrencies have grown hugely popular in the last few years even as debate rages over their status. India, which reportedly has around two crore crypto investors, is keenly awaiting the winter session of Parliament during which a cryptocurrency bill will be tabled, which would clear the government's stand on digital coins. The winter session begins November 29.