US Senators introduce bill to monitor El Salvador BTC adoption

By Raffaele Redi
• Updated

The Latin American country has quarrelled with the US amid financial troubles for El Salvador

El Salvador bitcoin (BTC) adoption could represent a potential risk to the US financial system, according to three US senators who introduced a bill requiring the State Department to report on the issue.

BTC adoption would have “the potential to weaken US sanctions policy, empowering malign actors like China and organised criminal organisations,” according to three promoters of the bipartisan Accountability for Cryptocurrency in El Salvador (ACES) Act.

US senators Jim Risch (Idaho) and Bob Menendez (new Jersey), ranking member and chair of the Senate Foreign Relations Committee, and Bill Cassidy (Louisiana) required “an analysis of El Salvador’s adoption of bitcoin as legal tender and the risks for cybersecurity, economic stability, and democratic governance in El Salvador, and finally a plan to mitigate potential risks to the US financial system”.

“El Salvador’s adoption of bitcoin as legal tender raises significant concerns about the economic stability and financial integrity of a vulnerable US trading partner in Central America. Our bipartisan legislation seeks greater clarity on El Salvador’s policy and requires the administration to mitigate potential risk to the US financial system,” said Senator Risch.

“El Salvador recognising bitcoin as official currency opens the door for money-laundering cartels and undermines US interests,” said Cassidy. “If the United States wishes to combat money-laundering and preserve the role of the dollar as a reserve currency of the world, we must tackle this issue head on.”

Bukele’s response and El Salvador’s financial context

Nayib Bukele, president of El Salvador, immediately responded to the US senators via Twitter, supported by the coutnry’s residents and BTC enthusiasts.

“OK boomers… You have zero jurisdiction over a sovereign and independent nation. We are not your colony, your backyard or your front yard. Stay out of our internal affairs. Don’t try to control something you can’t control,” he tweeted.

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However, the bitcoin move seems not to have achieved its desired results as the financial and economic local context seems to deteriorate according to the international authorities and agencies.

Recently, Fitch Ratings downgraded El Salvador's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'CCC' from 'B-', indicating that the country may have a very low margin for safety, while the default is a real possibility.

In Fitch’s view, “weakening of institutions and concentration of power in the presidency has increased policy unpredictability, and the adoption of bitcoin as legal tender has added uncertainty about the potential for an IMF [International Monetary Fund] programme that would unlock financing for 2022–2023”.

The ratings agency expects El Salvador’s 2022 fiscal deficit to narrow marginally to 5.5% of gross domestic product (GDP) in 2022, down from 5.7% of GDP in 2021, with GDP standing at $24.6bn in 2020. It also indicated a remote possibility of financing growth by debt.

“External financing options are also uncertain. Rates in the external bond markets over 15% are prohibitive. There is a high degree of uncertainty surrounding other sources of external financings, such as additional multilateral funding, given doubts surrounding an IMF programme, as well as the capacity to issue ‘bitcoin-backed bonds’ through new distribution channels,” said Fitch.

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