Technology

When El Salvador could enter default: These are the notes of the credit agencies

In September 2021, El Salvador made history by becoming the first country to adopt bitcoin as legal currencyly, a month later, the president of the nation, Nayib Bukele, announced an ambitious project: The construction of the first ‘BitcoinCity‘ (bitcoin city).

The objective of both measures was to boost the country’s economy through the use of cryptocurrencies, making bitcoin the currency of unlimited legal tender for any type of transaction; while Bitcoin City would use geothermal energy, it would have residential and commercial areas and even its own airport.

For this, the Federal Government developed his own electronic wallet and acquired 400 bitcoins, which were distributed through an equivalent bond of 30 dollars to each citizen.

Unfortunately, the value of bitcoin has plunged more than 50% from its all-time highs, resulting in a tailspin for the country’s government bonds, the same ones that are currently listed to 40% of its original value.

You may also be interested in: Nayib Bukele celebrates the arrest of alleged gang members: “More than 14 thousand terrorists out”

When El Salvador could enter default: These are the notes of the credit agencies

With the collapse of bitcoin and the low acceptance of cryptocurrency – only 20% of citizens continued to use bitcoins after spending bonus money – it is feared that the country cannot meet the next payment of your debt. As reported The countryEl Salvador took $25 million from national reserves to convert them into bitcoins and must others 800 million that must be paid before 2023, otherwise the country would go into default.

The country’s transition to an economy based on blockchain and cryptocurrencies has turned out to be a failure. Measure it has already cost El Salvador its credit rating.

Moody’s has been the last rating agency in issue a bad note to the country, lowering the risk rating from Caa1 to Caa3, with a negative outlook, raising the “risk of non-payment for the return of 800 million dollars next January.”

This translates into a strong blow for El Salvador, since, ratings are used by the market to define “the risk of default on a debt”. In other words, a bad grade means higher interest for the Government when paying creditors, in addition, it prevents the country from accessing global markets to issue more debt.

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