IMF sees legal and economic problems with bitcoin switching in El Salvador

IMF sees legal and economic problems with bitcoin switching in El Salvador

Rice said the Fund will later on Thursday meet with Bukele to discuss the bitcoin law. El Salvador is in discussions with the IMF seeking a near $1 billion program. “We see the bitcoin headlines out of El Salvador as noise that could complicate discussions with the IMF,” said Citi’s Donato Guarino in a recent note to clients, reducing the bank’s already underweight exposure to the country even further. “Crypto is a very marginal story to the Salvadoran investment thesis,” said Patrick Esteruelas, research head at Emso Asset Management in New York.

Foreign investors, concerned about the future of an IMF deal they see as key for the Central American country, have demanded increasingly higher premiums to hold Salvadoran debt. “We are following developments closely, and we’ll continue our consultations with the authorities.”

The JPMorgan EMBI global diversified index (.JPMEGDELSR) spread over safe haven U.S. Treasuries has jumped by 66 basis points (bps) so far this week to trade at 648 bps. “Adoption of bitcoin as legal tender raises a number of macroeconomic, financial and legal issues that require very careful analysis,” said Gerry Rice, an IMF spokesman, during a scheduled press briefing.

El Salvador bonds were trading lower in price across the curve on Thursday, with the 2027 and 2052 issues down 1 cent each on the day. Our Standards: The Thomson Reuters Trust Principles. “The law by itself does not assuage doubts about the feasibility of the project nor does it add any confidence the development will put the IMF program back on track,” said Nathalie Marshik, head of EM sovereign research at Stifel.

El Salvador’s law means bitcoin will have equal footing with the dollar, which became its official currency 20 years ago. read more “Whether El Salvador is going to be attractive (for investors) or not is going to depend on Bukele’s ability to use his unquestionable political capital to bring a large consolidated fiscal deficit into control.”

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