Bitcoin: El Salvador approves legal use of cryptocurrency 0:33
(Reuters) -
The International Monetary Fund (IMF) said on Thursday it has a number of economic and legal concerns regarding El Salvador's decision to make bitcoin a parallel legal currency.
El Salvador has become the first country in the world to adopt the cryptocurrency bitcoin as a legal tender.
President Nayib Bukele has promoted its use for its potential to help Salvadorans living abroad send remittances home.
"The adoption of bitcoin as legal tender raises a number of macroeconomic, financial and legal issues that require very careful analysis," said Gerry Rice, IMF spokesman, during a press conference.
"We are closely monitoring developments and will continue our consultations with the authorities," he added.
Advantages and disadvantages of bitcoin in El Salvador 4:16
Investors are more demanding
The wake-up calls come as foreign investors, concerned about the future of an agreement with the IMF that they consider key for the Central American country, have demanded higher and higher premiums to maintain the Central American country's debt.
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This is seen in the JPMorgan EMBI global diversified index, which compares El Salvador's debt to US Treasury yields, which soared 61 basis points on Thursday to trade at 683 points, the highest level since February 22.
"We see the bitcoin news from El Salvador as noise that could complicate discussions with the IMF," Citi's Donato Guarino said in a recent note to clients, further reducing the bank's already underweight exposure to the country.
Rice said the Fund will meet later Thursday with Bukele to discuss the bitcoin law.
El Salvador is in talks with the IMF for a program of almost US $ 1 billion.
"Cryptocurrencies are a very marginal story for the investment approach in El Salvador," said Patrick Esteruelas, head of research at Emso Asset Management in New York.
"Whether or not El Salvador is going to be attractive (to investors) will depend on Bukele's ability to use his unquestionable political capital to control a large consolidated fiscal deficit."
El Salvador's law means that bitcoin will be on an equal footing with the dollar, which became its official currency 20 years ago.
"The law by itself does not dispel doubts about the project's viability or add any confidence that it will get the IMF program back on track," said Nathalie Marshik, head of sovereign emerging markets research at Stifel.
Meanwhile, a "conservative" regulation is emerging
Banks around the world must set aside enough capital to cover losses from any bitcoin holdings in full, global regulators proposed Thursday, in a "conservative" step that could prevent widespread use of cryptocurrency by large lenders. .
The Basel Committee on Banking Supervision, made up of regulators from the world's leading financial centers, proposes a two-pronged approach to capital requirements for banks' crypto assets in its first bespoke rule for the sector.
Meanwhile, major economies, including China and the United States, have signaled a stricter approach in recent weeks as they discuss plans to develop their own central bank digital currencies.
The Switzerland-based Basel committee said in a consultation paper that while bank exposures to crypto assets are limited, their continued growth could increase risks to global financial stability from fraud, cyberattacks, money laundering and terrorist financing if no capital requirements are introduced.
Bitcoin and other cryptocurrencies are currently worth around $ 1.6 trillion globally, which is still small compared to bank holdings of loans, derivatives, and other major assets.
The Basel rules require banks to assign "risk weights" to different types of assets on their books, and to add them together to determine general capital requirements.
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