Moody’s reveals that El Salvador’s sovereign credit risk is increased by Bukele’s Bitcoin transaction: Moody’s

According to the credit rating agency, El Salvador’s Bitcoin experiment could have a negative impact on its ability to access foreign debt markets.
According to Moody’s Investors Service, El Salvador’s recent embrace of Bitcoin (BTC), could have negative effects on its sovereign credit outlook. Jaime Reusche, Moody’s analyst, told Bloomberg this week that El Salvador’s Bitcoin embrace “certainly adds” to the country’s risk portfolio. This is a country that has had problems with liquidity in the past. El Salvador, under President Nayib Bukele, has made Bitcoin legal tender and created a state-run cryptocurrency wallet to facilitate ownership, payments, and transfers. El Salvador has amassed 1,391 BTC over the years. President Nayib Bukele is famous for “buying the dip” by using Bitcoin’s volatility to increase his country’s holdings. 150 new coins were added to the purchase of the dip. #BitcoinDay (@BTC) September 7, 2021

Reusche warned however that El Salvador’s default risk would be increased if it accumulated more bitcoin. “If it gets much higher, then that represents an even greater risk to repayment capacity and the fiscal profile of the issuer,” he said.PREDICTION: The El Salvador bitcoin bond will be ridiculously oversubscribed– Pomp (@APompliano) November 23, 2021

Moody’s has downgraded El Salvador’s credit rating and warned that the country’s “Bitcoin volcano bond” could restrict its access to foreign bond market. The volcano bond, which is expected raise around $1 billion, will be used for funding El Salvador’s Bitcoin City project. Related: Tonga will copy El Salvador’s bill making Bitcoin legal, says an ex-MPAttacks. Legacy financial institutions have been criticized for their stance on El Salvador’s Bitcoin scheme. The Washington-based International Monetary Fund warned El Salvador not to use Bitcoin as legal tender in November 2021. The request for assistance by the World Bank to implement its Bitcoin Law was rejected by El Salvador due to alleged transparency and environmental concerns. El Salvador has not wavered in its embrace of Bitcoin and in creating a favorable environment for crypto entrepreneurs and investors. Alejandro Zelaya, the finance minister, stated last week that the country’s Bitcoin Law had attracted foreign investment.

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