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S & P Global Ratings warns that El Salvador’s adoption of Bitcoin as fiat currency is risky and negatively impacts the country’s credit rating.
“The risks associated with the adoption of Bitcoin as fiat currency in El Salvador seem to outweigh its potential benefits. Credits will soon have a negative impact and Bitcoin may be widely used. Is low, “S & P Global wrote: Friday Tweet..
The largest S & P of the Big Three rating agencies currently rates El Salvador as B- with a “stable” outlook.
Competitor Moody’s downgraded a Central American country to Caa1 in July. This is partly due to the uncertainty about providing new funding to El Salvador after the International Monetary Fund (IMF) adopted Bitcoin as fiat currency.
“The negative outlook for the Caa1 rating is a funding shock that remains fragile and could jeopardize sovereign repayment capacity ahead of the tight redemption schedule for external market debt starting in January 2023. It reflects Moody’s view that it is vulnerable. ” Moody’s said..
“Limited funding options for sovereigns and uncertainty surrounding the possibility of new funding from the IMF will allow authorities to take steps to achieve further gradual fiscal consolidation. Despite its willingness, it suggests that sovereigns will continue to face liquidity pressures, “the agency added.
The potential of the El Salvador IMF program is “under discussion,” IMF spokesman Gerry Rice said at a press conference Thursday, adding that anti-corruption measures and financial responsibility are high on the agenda.
Earlier this month, El Salvador became the first country in the world to adopt Bitcoin as fiat currency, with President Nayib Bukele becoming a major supporter of the move.
“The #Bitcoin process in El Salvador has a learning curve. The step towards the future is like this, and we can’t do it all in a day or a month. But we have to break through the paradigm of the past. No, “Bukere Written on twitter September 7th, the day the law enacting the legal tender of Bitcoin came into effect.
The experiment to create the legal tender of El Salvador’s Bitcoin was spoiled by minor technical glitches that prevented its use on the day of adoption, but street protests by distrustful citizens arose in the country.
The IMF, which provided an emergency loan to El Salvador last year and is negotiating another lending round, has said it is reluctant to adopt Bitcoin as its fiat currency.
“The most direct cost of widespread adoption of crypto assets such as Bitcoin is macroeconomic stability,” said the IMF. Blog post In late July. “As a national currency, crypto assets, including Bitcoin, carry significant risks to macro financial stability, financial integrity, consumer protection, and the environment.”
The IMF praised the consideration of the potential benefits of underlying technologies, such as promoting financial inclusion, but the IMF cautioned.
“But governments need to step up to deliver these services and leverage new digital forms of money while maintaining stability, efficiency, equality and environmental sustainability. Trying to make it your home currency is a not recommended shortcut, “said the IMF.
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Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communication, and adult education. The best writing advice he has ever heard is from Roy Peter Clarke.
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