El Salvador’ IDR plunges from ‘B-’ to ‘CCC: Bitcoin side effect
Credit rating agency Fitch noted that El Salvador lost its IDR rating from B- to CCC because of the adoption of Bitcoin as currency.
On 9 February, Fitch, a credit rating agency, published a report on the downfall in the credit rating of El Salvador. According to Fitch, the country is facing a downfall Currency Issuer Default Rating (IDR) from B- to CCC because of the adoption of Bitcoin.
However, Fitch noted that Bitcoin is not only the reason for this downgrade but still Bitcoin as a currency is playing a significant role in two ways.
The first reason that Fitch noted is the adoption of Bitcoin as Currency is the main reason to see this downfall.
“The adoption of bitcoin as legal tender has added uncertainty about the potential for an IMF program that would unlock financing for 2022-2023.”
Secondly, Fitch noted that the Bitcoin bond idea of the El Salvador government played another significant role besides the weakening of institutions and concentration of power in the presidency.
“There is a high degree of uncertainty surrounding other sources of external financings, such as additional multilateral funding, given doubts surrounding an IMF program, as well as the capacity to issue “bitcoin-backed bonds.”
El Salvador Bitcoin bond
Here this downgrade in the credit rating doesn’t mean that El Salvador is facing downfall in terms of development works but here it is an indication that a country may face a huge downfall in its business and development because of not much better systematic plans because of the ruling government. Indirectly we can say that IDR ratings show the future financial status of a country.
However, Fitch noted that the Bitcoin-backed bond idea of the country is a reason for this downfall but in reality, El Salvador government officials believed that Bitcoin Bond is better than traditional bonds.
Earlier today, the finance minister of El Salvador confirmed, in speaking with a local news media program, that first Bitcoin bond will be issued by the government in between 15 March to 20 March of this year and there will be a minimum bond buy threshold of $100 so that every citizen can effort.
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