The Latin American country in September became the first country in the world to embrace digital money, allowing consumers to use it in all transactions, alongside the US dollar.
The IMF's appeal came as the cryptocurrency fell in value, undoing much of the gains it had made during a record rise in value last year.
IMF staff previously called on El Salvador President Nayib Bukele to reconsider putting Bitcoin at the center of his country's finances.
The latest pronouncement used much stronger language and came from the board of the IMF, which is made up of representatives of member governments, including the United States.
The council "urged authorities to narrow the scope of the Bitcoin law by removing Bitcoin's fiat status," the IMF said in a statement.
They "pointed out that there are great risks associated with the use of Bitcoin on financial stability, financial integrity and consumer protection" and with the issuance of Bitcoin-backed bonds.
In response, El Salvador's Treasury Minister Alejandro Zelaya noted the IMF agreement that increasing financial inclusion is important and that an e-wallet could help, to which he added via Twitter: “It seems to work for the financial inclusion, but it must not be done. The future awaits no one. #Bitcoin ".
Bitcoin traded at around $ 37.000 on Tuesday, having lost about half its value from its record high of $ 67.734 in November.
Bitcoin surged in value in 2021 as Wall Street showed a growing appetite for cryptocurrencies, as Tesla boss's controversial tweets (Tesla shares - TLSA ticker) Elon Musk on digital assets helped the market rise and fall alike.
The trend was not lost by Bukele, who was elected in 2019 with promises to fight organized crime and improve security in his violence-ravaged country.
His move last September to legalize Bitcoin in El Salvador attracted world attention and sparked protests on the streets of the capital San Salvador that were also about his administration's judicial reforms, which critics say threaten democracy.
Thousands of people took to the streets carrying "No to Bitcoin" signs and at one point burning one of the Bitcoin ATMs that had been installed across the nation.
But they don't seem to discourage Bukele, who announced plans in November to build the world's first "Bitcoin City", fueled by a volcano and funded by $ 1 billion cryptocurrency bonds. His administration had also taken advantage of the price drops to buy digital goods for the country.
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