The International Monetary Fund said on Thursday that it expressed economic and legal concerns about El Salvador’s move to use Bitcoin as a parallel legal tender, which further clouded the prospects of the IMF-supported program and expanded the country’s bond interest. difference.
El Salvador has become the first country in the world to adopt Bitcoin as its legal tender. President Nayib Bukele touted the use of Bitcoin to help Salvadorans living abroad remit money back home. Among cryptocurrencies, as of 11:20 AM Standard Time on June 11, the price of Bitcoin in India was 2.68 million.
“The adoption of Bitcoin as legal tender will trigger a series of macroeconomic, financial and legal issues that require very careful analysis,” IMF spokesperson Gri Rice said at a scheduled press conference.
“We are monitoring developments closely and we will continue to consult with the authorities.”
Foreign investors worry about the future of IMF transactions, which they believe are vital to Central American countries, and therefore demand higher and higher premiums for holding Salvadoran bonds.
The spread between the JPMorgan EMBI Global Diversity Index and the safe-haven US Treasury bond rose by 61 basis points (bps) on Thursday alone, reaching 683 basis points, the highest level since February 22. The average daily volatility over the past 21 trading days was 1.86 basis points.
Citi’s Donato Guarino stated in a recent report to clients: “We treat the Bitcoin headlines in El Salvador as noise and may complicate discussions with the IMF,” which further Reduced the country’s exposure that the bank had already reduced.
Rice said that the fund will meet with Bukele later on Thursday to discuss Bitcoin laws. El Salvador is discussing with the International Monetary Fund a plan to seek nearly one billion U.S. dollars (about 73 billion rupees).
Patrick Esteruelas, head of research at Emso Asset Management in New York, said: “Cryptocurrency is a very marginal story for the theory of investment in El Salvador.”
“Whether El Salvador is attractive (for investors) will depend on whether Booker can use its unquestionable political capital to control the huge consolidated fiscal deficit.”
El Salvador’s law means that Bitcoin will be on par with the U.S. dollar, which became its official currency 20 years ago.
Nathalie Marshik, head of Sovereign Studies for Emerging Markets at Stifel, said: “The law itself does not alleviate doubts about the feasibility of the project, nor does it increase any confidence that this development will put the IMF program back on track.”
On Thursday, the price of El Salvador’s bonds went lower across the curve, with bonds in 2027 and 2052 falling by 1 cent on the same day.
© Thomson Reuters 2021