JAKARTA – El Salvador's historic move in adopting Bitcoin (BTC) as a legal tender could have negative consequences on the country's credit prospects. This is explained by Moody's Investors Service.
Moody's analyst Jaime Reusche told Bloomberg this week that El Salvador's Bitcoin first move "certainly adds to the risk portfolio" of a country that has struggled with liquidity problems in the past.
Under the leadership of President Nayib Bukele, El Salvador has recognized Bitcoin as a legal tender and issued a state-run crypto wallet to facilitate payments, transfers and holdings.
To date, El Salvador has amassed a treasure chest of 1,391 BTC, as President Bukele has been “buying the drop” on several occasions using Bitcoin's volatility to increase his country's holdings.
However, Reusche warned that accumulating more BTC would increase El Salvador's risk of default. “If it is much higher, then it represents a greater risk to the issuer's payment capacity and fiscal profile,” Reusche said, as quoted by Cointelegraph.
In addition to downgrading El Salvador's credit rating, Moody's has warned that the country's so-called Bitcoin volcano bonds could limit its access to foreign bond markets. Proceeds from the volcano bonds, which are expected to raise around $1 billion, will be used to fund the El Salvador City Bitcoin project.
Attacks on El Salvador's Bitcoin move by legacy financial institutions are nothing new. In November 2021, the Washington-based International Monetary Fund (IMF) warned El Salvador against using Bitcoin as legal tender.
Meanwhile, the World Bank has rejected the country's request for assistance in implementing the Bitcoin Law over alleged environmental concerns and cryptocurrency transparency.
Creo que iré a visitar a mis hermanos en el exterior https://t.co/LImFJxOpUo
— Nayib Bukele (@nayibbukele) January 15, 2022
Nevertheless, El Salvador remains steadfast in embracing Bitcoin and in creating an attractive environment for crypto investors and entrepreneurs. Last week, El Salvador's Finance Minister, Alejandro Zelaya, said the country's Bitcoin law had attracted foreign investment.
Especially after El Salvadorans living in the United States continue to voice their support for Nayib Bukele who has adopted Bitcoin as a legal payment in that country. Bukele is increasingly confident and indifferent to the warnings of international financial institutions.
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