El Salvador’s credit rating could take a hit amid Bitcoin adoption, warns S&P Global

Published at: Sept. 17, 2021

Credit rating agency Standard and Poor (S&P) Global believes the country of El Salvador has severely harmed its credit rating after enacting its Bitcoin Law recognizing Bitcoin (BTC) as legal tender nationwide on Sept. 7.

According to a report from Reuters Thursday, El Salvador’s Bitcoin embrace exposes its economy to significant financial risks and could pose challenges for the country’s lending industry.

The credit agency also believes the move could also dampen El Salvador’s chances of securing a $1-billion loan agreement it is seeking from the International Monetary Fund (IMF).

“The risks associated with the adoption of bitcoin as legal tender in El Salvador seem to outweigh its potential benefits,” S&P said, emphasizing the “immediate negative implications” of the Bitcoin Law for the country’s credit rating.

International credit rating agencies offer a grim outlook for El Salvador’s ranking amid the lead-up to the BTC adoption. 

Prior to Salvadoran President Nayib Bukele announcing his intention for the country to recognize BTC as legal tender in June of this year, Fitch had stamped El Salvador with a B- in April 2020 — assessing the country as high risk with a negative outlook.

S&P’s last assessed El Salvador’s credit score as being a B- as of Dec. 28, 2018, suggesting it may be due for an update, given the dramatic shift in the nation’s monetary policy.

While President Bukele maintains high approval ratings among the Salvadoran populace, his leadership and government have faced backlash for enacting the Bitcoin Law despite the country’s low rates of crypto literacy.

To my English-speaking Twitter friends: This 15/9/21, El Salvador did not celebrate 200 years of independence. Instead, we filled the streets to protest the breaking of our democracy, rule of law, and an incipient dictatorship. THIS is why we marched. #El15Marchamos pic.twitter.com/wyf1B4QzgZ

— cg (@NorteSur7) September 16, 2021

Related: Protesters burn Bitcoin ATM as part of demonstration against El Salvador president

There also appears to be push back abroad from financial agencies, such as the World Bank and IMF, which have both reiterated cautious sentiments this month regarding the adoption of BTC as legal tender.

IMF spokesperson Gerry Rice stated in a press briefing on Thursday that while the fund is still in discussions with El Salvador over a potential support program, it hasn’t changed its stance that the consequences of BTC adoption could be “dire.”

“The potential of an IMF program for El Salvador is under discussion. Again the objectives of that are clear: growth, financial stability and so on. On the specific Bitcoin issue, I think we’ve been fairly clear in our public statements,” Rice said.

On Sept. 7, a World Bank spokesperson told Reuters that “while the government did approach us for assistance on Bitcoin, this is not something the World Bank can support given the environmental and transparency shortcomings.”

Tags
Regulation
Bitcoin Regulation
El Salvador
Bitcoin Payments
Imf
World Bank
Related Posts
What is really behind El Salvador’s ‘Bitcoin Law’? Experts answer
Wouter Witvoet, CEO of DeFi Technologies: “In the past, El Salvador struggled with trust in its monetary policy, so in 2001, it ‘dollarized’ its economy and effectively gave control of its monetary system to the U.S. Federal Reserve. It saw the U.S. dollar as a more stable, trustworthy currency than its own. Since the 2008 global financial crisis, the U.S. has been pursuing a very experimental form of monetary policy involving tools like quantitative easing and a central bank that now directly monetizes, or purchases, government-issued debt to keep interest rates low. This is a playbook that is dictated by …
Adoption / July 2, 2021
Bukele’s Bitcoin trade raises El Salvador’s sovereign credit risk: Moody’s
El Salvador’s historic embrace of Bitcoin (BTC) could have negative consequences on the country’s sovereign credit outlook, according to Moody’s Investors Service. Moody’s analyst Jaime Reusche told Bloomberg this week that El Salvador’s Bitcoin gambit “certainly adds to the risk portfolio” of a country that has struggled with liquidity issues in the past. Under the leadership of President Nayib Bukele, El Salvador has recognized Bitcoin as legal tender and issued a state-run crypto wallet to facilitate payments, transfers and ownership. Along the way, El Salvador has amassed a treasure chest of 1,391 BTC, with President Bukele famously “buying the dip” …
Adoption / Jan. 14, 2022
IMF urges El Salvador to remove Bitcoin's status as legal tender
Members of the executive board at the International Monetary Fund are urging lawmakers in El Salvador to no longer recognize Bitcoin as legal tender. The IMF reported on Tuesday that though digital payments had the potential to increase financial inclusion in the Central America nation, the use of Bitcoin (BTC) as legal tender carried “large risks” related to financial stability, financial integrity, and consumer protection. The executive board directors urged El Salvador authorities to “narrow the scope of the Bitcoin law by removing Bitcoin’s legal tender status,” also expressing concern about the potential risks of issuing Bitcoin-backed bonds. The officials’ …
Bitcoin / Jan. 25, 2022
Bill to make Bitcoin legal tender passes in El Salvador
The bill introduced by the president of El Salvador to make Bitcoin (BTC) legal tender in the nation passed the Legislative Assembly with a supermajority just before 6:00 am UTC. In a Twitter Spaces conversation with 22,000 listeners that began just after 5:00 am UTC, President Nayib Bukele said he would sign off on the historic law later that night or first thing the next day. “It goes into effect immediately,” he said, clarifying the government would allow 90 days for the infrastructure to be put into place. The #BitcoinLaw has been approved by a supermajority in the Salvadoran Congress. …
Regulation / June 9, 2021
What should the crypto industry expect from regulators in 2022? Experts answer, Part 1
Yat Siu of Animoca Brands Yat is the co-founder and executive chairman of Animoca Brands, which delivers digital property rights to the world’s gamers and internet users, thereby creating a new asset class, play-to-earn economies and a more equitable digital framework contributing to the building of the open Metaverse. “Regulation will start to become more defined in 2022, although how, exactly, remains to be seen. 2021’s milestone was probably the substantial growth in public awareness of blockchain — Collins Dictionary even declared ‘NFT’ the word of the year.” These quotes have been edited and condensed. The views, thoughts and opinions …
Decentralization / Jan. 8, 2022