By Nathan Ferguson
Recently this month, El Salvador became the first of the countries adopting Bitcoin (BTC) as a legal tender by approving a bill in its favor. Further, the registered citizens would be awarded $30 off the BTC value. Although the effect of the bill will be implemented from September 7, 2021, onwards yet the civilians are desperately waiting for the proper instructions to be proposed by the regulators of the country. Even though a lot of enthusiasm has been given in return to this step yet, it has also confronted a lot of criticism. Many sectors such as financial institutions and regulators have condemned it.
The economic rating and analytics firm based in New York named Fitch Ratings have more recently published its ideas regarding the issues to be faced by El Salvador. The firm proposed that there is a chance of an increase in risks related to operating, finance, and regulations experienced by the financial institutions of the country. Additionally, it stated, this move will expedite the concerns about the violation of the institutional standards countering terrorist financing and money laundering.
It was mentioned by the firm that the high-value volatility of the largest cryptocurrency of the world is hindering the way it is used as a method of payment and a store of value. It further added that if the Bitcoin (BTC) assets are not immediately converted to USD, then the potential volatility in the value of USD could be faced by the financial institutions. Moreover, if the proper regulations are not provided for the management of banks’ balance sheet exposure would probably be counted as a negative credit based on a recent prudent consultation by Basel. Correspondingly, the open positions from the regulatory capital of banks would be completely deducted.
However, Fitch Ratings alarmed about a detrimental effect on the actual rating of acceptance because of the challenges regarding internet access, financial inclusion, and implementation. Besides, the concerns pointed out by IMF about the legal, financial, and macroeconomic system have also been cited by the report in addition to the disapproval by World Bank to support El Salvador.
While some analysts such as Lark Davis come up with a more positive view about the Bitcoin (BTC) adoption of El Salvador as he reveals that the country’s move toward BTC has not been appreciated by the rating agencies that is why they are lying about it as they lied about the mortgage markets in 2008.