The International Monetary Fund said Thursday it had economic and legal concerns over El Salvador’s decision to make Bitcoin a parallel legal tender, further clouding the outlook for an IMF-backed program and widening spreads on country bonds.
El Salvador became the first country in the world to adopt Bitcoin as legal tender, with President Nayib Bukele touting its use for its potential to help Salvadorans living abroad send funds home. Among cryptocurrencies, the price of Bitcoin in India was 26.8 lakhs at 11:20 am IST on June 11.
“The adoption of Bitcoin as legal tender raises a number of macroeconomic, financial and legal issues that require very careful analysis,” said Gerry Rice, IMF spokesperson, at a scheduled press briefing.
“We are closely monitoring developments and will continue to consult with the authorities.”
Foreign investors, worried about the future of an agreement with the IMF that they see as essential for the Central American country, have demanded increasingly high premiums to hold Salvadoran debt.
The spread of the JPMorgan EMBI Global Diversified Index against safe haven US Treasuries jumped 61 basis points (bps) on Thursday alone to trade at 683 bps, the highest level since February 22. The average daily move over the past 21 trading sessions is 1.86. bps.
“We view Bitcoin’s headlines from El Salvador as noise that could complicate discussions with the IMF,” Citi’s Donato Guarino said in a recent note to clients, further reducing the already underweight exposure. from the bank to the country.
Rice said the Fund would meet with Bukele later Thursday to discuss the Bitcoin law. El Salvador is in talks with the IMF for a program of nearly one billion dollars (about 7300 crore rupees).
“Crypto is a very marginal story compared to the Salvadoran investment thesis,” said Patrick Esteruelas, head of research at Emso Asset Management in New York.
“Whether El Salvador is attractive (to investors) or not will depend on Bukele’s ability to use his indisputable political capital to bring a large consolidated budget deficit under control. “
Salvadoran law means that Bitcoin will be on a par with the dollar, which became its official currency 20 years ago.
“The law in itself does not allay doubts about the feasibility of the project and does not add any confidence that development will put the IMF program back on track,” said Nathalie Marshik, head of EM sovereign research at Stifel. .
Salvadoran bonds were trading lower across the curve on Thursday, with 2027 and 2052 issues down 1 cent each on the day.
© Thomson Reuters 2021