Moody’s downgrades El Salvador
Moody’s rating agency downgrades El Salvador and maintains its negative view of the country’s economy. The rating agency explained that this degradation was largely due to the adoption of the “Bitcoin Law (BTC)”.
In June, El Salvador adopted Bitcoin as legal tender. Thus, all businesses in the country must accept BTC as payment for goods and services by September.
In response, Moody’s downgraded long-term foreign currency bond ratings and El Salvador’s senior secured debt ratings from B3 to Caa1. Noting a “deterioration in politics,” the agency said:
“The Bitcoin law and other measures reflect weakened governance in El Salvador, which increases tensions with international partners, including the United States, and undermines progress towards an agreement with the International Monetary Fund (IMF).”
IMF and JPMorgan show suspicion
El Salvador’s adoption of Bitcoin as legal tender has sparked a lot of backlash. Gerry Rice, IMF spokesperson, expressed his distrust on the subject:
“The adoption of Bitcoin as a legal currency raises a number of macroeconomic, financial and legal issues that require very careful analysis. We are therefore monitoring developments closely, and we are continuing to consult the authorities. “
Moody’s, the IMF and even JPMorgan have spoken on the subject. The investment bank suggested that legal adoption of the currency could lead to the Bitcoin network being overloaded. According to JPMorgan, the adoption of BTC in El Salvador risks even “cannibalizing the liquidity of the earth dollar” by creating an imbalance in demand for Bitcoin / Dollar conversion on the exchange set up by the government.
Finally, according to a recent study, only 20% of the inhabitants of El Salvador approve the use of legal tender Bitcoin. An opposition party even filed a complaint to have the Bitcoin law recognized as unconstitutional.
👉 To read on the same subject: El Salvador could launch a national stablecoin
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About the author: Florent David
Engaged in the crypto ecosystem since 2017. I am particularly interested in decentralized finance (DeFi), Ethereum 2.0 and non-fungible tokens (NFT).
All articles by Florent David.