Credit agencies in El Salvador warn of the dangers of using Bitcoin as legal tender

Among the reasons for the drop in confidence are some policies of the Salvadoran President and the approval of the Bitcoin Law, which Moody’s sees as a potential sign of weakening governance in the country.

“On June 9, the Legislature approved the world’s first law that converts Bitcoin (a cryptocurrency) into legal tender in the country, so that both the US dollar and Bitcoin are now legal currency for settling transactions.” expresses the report. “In Moody’s opinion, these measures reflect the weakening of governance in El Salvador, which increases tensions with international partners – including the United States (Aaa stable) – and jeopardizes progress towards an agreement with the IMF.”

In the last hours it was added Fitch Ratings which warned of the possible negative consequences of adopting Bitcoin for its financial institutions and its insurance sector. According to Fitch, the law of Bitcoin from El Salvador would basically leave these institutions with two alternatives to stay alive: Keep their Bitcoins, or adapt their entire infrastructure and sell their BTC as soon as they receive it.

In the event that institutions decide to hold Bitcoin for their day-to-day transactions, exposure to credit volatility would greatly increase their risk, the credit bureau says. “Insurers that keep bitcoin on their balance sheets for long periods will be highly exposed to price volatility, increasing asset risk, which is negative for credit,” analysts at the firm wrote today.

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