Concerns surround El Salvador debt repayments since adopting Bitcoin as legal tender

The El Salvadoran experiment to make bitcoin legal currency has hit a wall. As a result of the fall in global markets caused by the uncertainty of the war in Ukraine, rising inflation and the US Federal Reserve’s decision to raise interest rates, the price of the world’s most popular cryptocurrency in has plummeted more than 50% from its all-time highs. 

And with it, so too have the bonds of the government of El Salvador, which are trading at 40% of their original value.

Investors are starting to doubt whether the country can meet its next debt payment, despite its low adoption among the population.

The International Monetary Fund, which could provide financing to help the Bukele government meet its next foreign debt payment in January 2023, urged the country to remove bitcoin as legal currency, as this exposes the state coffers to the price volatility of the cryptocurrency. 

Bukele’s insistence on keeping it as legal tender complicated his negotiations with the IMF.

The ups and downs of the market, coupled with the weakening of institutions in El Salvador, led several credit agencies to downgrade the country’s rating to CCC, described as “junk” in the industry. This rating prevents a country from accessing global markets to issue more debt, except at extremely high costs.

- CyberBeat