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El Salvador’s may risk its ‘Credit Score’ because of Bitcoin

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  • Latin American Country El Salvador was the first country to adopt Bitcoin as legal tender
  • President Nayib Bukele was a keen supporter of crypto from always, and hence it is reflected in the country’s Bitcoins purchasing and related projects
  • Currently, El Salvador has 1391 Bitcoins in its possession, 200 Bitcoin ATMs, and even working for the world’s first Bitcoin City

Moody’s Investor Services, usually known by Moody’s, a credit score rating firm, has expressed concern about El Salvador. Moody’s recent credit rating to El Salvador is very low, and one of the factors is Bitcoin. It is concerned that the country has already been facing liquidity issues in the past and now trading Bitcoin is a risky move. This will put the country in a high-risk profile, resulting in limiting its access to get financial help from foreign countries. 

El Salvador’s Bitcoin adoption-

Obsession towards the Bitcoin and Crypto of El Salvador’s President Nayib Bukele isn’t a hidden fact. He was a supporter of Bitcoin and purchased and voiced its acceptance from time to time. Bukele even possessed Bitcoin before he made it legal tender in the country in 2021, and then buying after the legalization was apparent. El Salvador was the first country to do so, and till the time, it’s the only country as well. 

The country faced issues related to its financial conditions, liquidity, and other problems. Despite that, the country moved forward and purchased Bitcoins. Buying Bitcoin by El Salvador was not praised inside and outside the country. Many prestigious financial institutions have criticized the step. Be it warning of International Monetary Funds on legalizing Bitcoin or rejection for assistance by World Bank for the implementation of Bitcoin Law.

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How Bitcoin’s possession can put the country at risk-

An Analyst from the agency has stated that the Latin American country had not been in good financial condition already. After the Covid situation went worse, and on top of that, the country legalized Bitcoin. That can be considered risky, but it will be better not go beyond this limit. El Salvador already has 1391 Bitcoins. The country is also working towards constructing the world’s first Bitcoin City. For the city, the government had issued bonds worth $1 Billion, which would only be relevant to the particular region.

However, this could be seen as any other investment but considering Bitcoins Volatility, and it’s undoubtedly a risky investment. And from the viewpoint that a country being dependent on Bitcoin, ignoring its risks can’t be considered a smart move.

Although the silver lining here could be that if all goes as per plan, the country will see a good return on its investment. The liquidity pressure on the country can be removed if the decent number of Bitcoin Bonds would perform well. The country’s first-mover approach may result in many Bitcoin and crypto-related projects and businesses. Recently El Salvador’s Finance minister Alezandro Zelaya stated that because of the Bitcoin law in the country, it had attracted foreign investment in the country already. 

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