El Salvador’s credit rating may suffer as a result of Bitcoin adoption

El Salvador’s adoption of Bitcoin as legal cash, according to S&P Global, has resulted in “immediate negative implications” for the country’s credit rating.

Credit rating agency Standard and Poor’s (S&P) Global believes El Salvador’s credit rating has been badly impacted as a result of the country’s Bitcoin Law, which recognized Bitcoin as legal cash countrywide on Sept. 7. According to a Sept. 16 Reuters story, El Salvador’s acceptance of Bitcoin exposes the country’s economy to major financial risks and may complicate the country’s lending industry.

Additionally, the rating agency believes the action could hurt El Salvador’s chances of obtaining a $1 billion loan arrangement from the International Monetary Fund (IMF). “The risks involved with adopting bitcoin as legal cash in El Salvador appear to outweigh the potential benefits,” S&P wrote, underlining the Bitcoin Law’s “immediate negative consequences” for the country’s credit rating.

International credit rating organizations forecast a bleak future for El Salvador’s credit rating in the run-up to BTC adoption. Prior to Salvadoran President Nayib Bukele announcing his plan to recognize Bitcoin as legal cash in June, Fitch had assigned El Salvador a B- in April 2020, classifying the country as high risk with a negative outlook.

El Salvador’s credit rating was last updated by S&P on Dec. 28, 2018, indicating that it may be due for an update given the country’s drastic shift in monetary policy While President Nayib Bukele enjoys widespread popular support in El Salvador, his leadership and government have experienced opposition for implementing the Bitcoin Law despite the country’s low crypto literacy rate.

Additionally, there appears to be pushback from international financial institutions such as the World Bank and IMF, who both reaffirmed cautious remarks last month on BTC’s legal tender status.

In a press briefing on Sept. 16, IMF spokesperson Gerry Rice stated that while the fund is still in discussions with El Salvador about a possible support program, it has not shifted its position that the repercussions of BTC adoption might 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,”

On Sept. 7, a World Bank official informed Reuters that “although the government approached us for assistance with Bitcoin, the World Bank cannot support this due to the environmental and transparency issues.”

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