Earlier this month, El Salvador became the first country to adopt Bitcoin as a legal asset and pass a bill to that effect. Also, El Salvador is now preparing to send $30 worth of BTC to its citizens. Although the bill will enter into force on September 7, 2021, the country is still awaiting implementation guidelines from its regulators. While the move was greeted with great enthusiasm by many, it came under criticism from various industries, including regulators and financial institutions.
Recently, New York-based economic analysis and rating firm Fitch Ratings published its views on the challenges ahead for El Salvador. According to the firm, there is the possibility of increased regulatory, financial and operational risks to El Salvador’s financial institutions. It will also raise concerns about violations of international standards against money laundering and terrorist financing.
The firm pointed out that the high price volatility of the world’s largest cryptocurrency poses a challenge to its use as a store of value and means of payment. Recently, New York-based economic analysis and rating firm Fitch Ratings published its views on the challenges ahead for El Salvador. According to the firm, there is the possibility of increased regulatory, financial and operational risks to El Salvador’s financial institutions. It will also raise concerns about violations of international standards against money laundering and terrorist financing.
The firm pointed out that the high price volatility of the world’s largest cryptocurrency poses a challenge to its use as a store of value and a means of payment. “If Bitcoin assets / liabilities are not converted to USD quickly or positions remain open, financial institutions may face potential volatility in the USD value of their balance sheets. The lack of adequate regulation for banks to manage their balance sheet risk would be a credit negative based on a recent Basel prudent consultation.” words were used.
Technology and Bitcoin Dilemma
The bill also requires all businesses in the country to accept Bitcoin, except for those with little or no access to the required technology. In this context, El Salvador’s President Nayib Bukele said, “If you go to a McDonald’s or something, they can’t say we won’t take your Bitcoin, they have to take it by law because it’s a legal offer.” used his words.
However, Fitch Ratings warned of a negative impact on the actual acceptance rate due to difficulties with implementation, financial inclusion and internet access. The report also touched upon the concerns regarding the “macroeconomic, financial and legal issues” that the IMF has recently expressed, while also mentioning the lack of support by the World Bank in this regard.
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