In June, El Salvador became the first government to declare Bitcoin a legal tender. However, in an interview on Monday, El Salvador central bank President Douglas Rodriguez stated that bitcoin will lose its reputation as a speculative asset and will demonstrate its usage as a legal payment method, as per the reports of Bloomberg. He even expects Bitcoin’s famed price volatility to aid the economy’s expansion above the 9 per cent predicted by the bank for this year. According to him, the country has stressed to the International Monetary Fund (IMF) as part of talks for a $1.3 billion extended financial facility.
Next month, the IMF will deliver its current assessment of El Salvador’s finances and economy, which might re-ignite talks. Investors have been eagerly following El Salvador’s dealings with the IMF since President Nayib Bukele made Bitcoin legal tender. To access international markets next year, the country needs to reach an agreement with the lender.
IMF issues warning in June about financial and regulatory risks
The extra yield money managers demanded to hold El Salvador’s sovereign debt over US Treasuries reached a height of 1,115 basis points in September, above the threshold considered distressed, due to risks around Bitcoin adoption, the uncertainty of an IMF deal, and other policy measures, according to Bloomberg. The IMF issued a warning in June about the financial and regulatory risks of utilising cryptocurrencies, while Moody’s Investors Service said the move jeopardises a programme with the fund.
Rodriguez believes that adoption of the Bitcoin will provide Salvadorans with more payment options. He described it as a way to bring people that the financial industry considers being too low-income or high-risk into the fold. Last month, Salvadorans began buying falls and selling rallies using fractional amounts of Bitcoin using the government’s Chivo wallet, which came preloaded with $30 in the cryptocurrency, according to Bloomberg. From Starbucks and McDonald’s to small electronics stores in San Salvador’s capital, businesses have begun to accept it in exchange for items.
Central bank anticipates remittances to hit a new high
As the US economy improves, the central bank anticipates remittances to hit a new high of $6.3 billion this year, up 31% from 2020, according to Bloomberg. Larger inflows may prompt the bank to revise its growth prediction to 10% by the end of the year.