The embrace of bitcoin (BTC) by the Central American country of El Salvador has caused quite a few headaches for regulators and oversight bodies around the world. Bitcoin became legal tender in the country and the government there also bought a large amount of bitcoins for the treasury. The well-known credit rating agency Moody’s states that these developments could cause major problems in the country in the future.
Bitcoin adoption
An analyst at Moody’s, Jaime Reusche, said during a interview met Bloomberg know that he does not think the developments in El Salvador are particularly sensible. According to him, the financial risk that El Salvador is running through the bitcoin investments is very high at the moment.
El Salvador’s credit outlook was already quite weak and by investing and even trading in the largest cryptocurrency the risk to the country will only increase, says Reusche. He argues that the government’s bitcoin assets definitely add to the risk portfolio.
At the time of writing, El Salvador has 1,391 bitcoin in its treasury. That is not enough to immediately cause major financial danger. Should this amount be increased in the future, which is very likely given President Bukele’s convictions, the risk of a financial catastrophe will increase, Reusche said.
Credit rating
In July of this year, El Salvador’s rating was downscaled to Caa1 by Moody’s. In the eyes of Moody’s, this score represents a very high credit risk. At the time, the reason given was the deterioration of the policy. Of course, this meant the embrace of bitcoin.
It is clear that Moody’s is not enamored with the far-reaching bitcoin adoption in El Salvador. They, like other large financial institutions, are making themselves like the IMF, serious concerns about financial stability.
President Nayib Bukele and other supporters of the developments in the country, however, will not care much about the negative reactions. They firmly believe in the world of crypto and what it can mean for countries all over the world.
–
