- By establishing Bitcoin as legal tender, El Salvador caused tension in the International Monetary Fund (IMF) and credit rating companies such as Moody’s and Fitch Ratings.
- El Salvador Conventional Bond Default Concerns Rise as Bitcoin Bond Issuance Delayed.
- Investors question whether the nation will be able to keep up with its current bond payments, but they also question its willingness to continue paying debt.
El Salvador’s time is running out and the gap to pay its debts seems to be getting shorter. The only thing that could save the nation is the launch of the “Bitcoin Bonds” but, apparently, they are not ready yet.
El Salvador is the first country in the world to establish Bitcoin (BTC) as its national currency. Since then, international organizations have warned of the impact of the measure on the country’s economy, especially on its ability to pay the debt.
Bitcoin bonuses
Some time after making BTC legal tender, the president of El Salvador, Nayib Bukele, announced his plans to offer Bitcoin Bonds.
A bond is a debt instrument issued by a company or public administration with the aim of financing itself. But, there is an important detail with bonds and is that they are a promise of payment and there is a possibility that the issuer of the bond cannot take care of the payment of the debt.
In February 2022, Fitch Ratings recess the nation’s rating to CCC, that is, there is a greater probability of default. This is due to its greater dependence on short-term debt and its limited sources of financing; especially given its strained relationship with the International Monetary Fund (IMF).
In fact, El Salvador’s conventional bonds maturing in 2032 offer an interest rate of 24% andas many will know, the interest rate is directly proportional to the risk, that is, the markets perceive that El Salvador’s debt is high risk and are preparing for a payment default.
Even so, the Minister of Finance, Alejando Zelaya, continues to assure that there is a “zero risk” of non-compliance with the payment of the debt.
What has happened to Bitcoin Bonuses?
El Salvador intends to raise $1 billion US dollars, which, in theory, will go as follows: 50% to buy Bitcoin and the rest to finance the development of a “Bitcoin City”. These bonds were supposed to be issued in March 2022, but to date this has not happened.
The Minister of Finance of El Salvador assured in a interview that the government was ready to issue the long-awaited bitcoin bonds. However, they consider that it is not yet the right time to issue it.
Despite this, Zelaya assured that they expected “to have an oversubscription” in the bonds. As well as that “there are interested buyers for a good amount of money”. In fact, he said that the demand exceeded by 500 million the supply of ,,000 million bonds.
But Bloomberg has a different theory: Nothing has gone as planned! The media outlet assured that investors are not fiercely demanding El Salvador’s Bitcoin Bond.
Regardless of the reason why the launch of the Bitcoin Bonds has been delayed, El Salvador could find itself in trouble by not being able to access the necessary funds for the payment of the debt. And, with it, Investors question whether the nation will be able to keep up with its current bond payments, but they also question its willingness to continue paying debt.
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