The international financial institution, World Bank stated that it could not support El Salvador’s decision on bitcoin implementation considering the environmental and transparency drawbacks.
“We are committed to helping El Salvador in numerous ways including for currency transparency and regulatory processes. While the government did approach us for assistance on bitcoin, this is not something the World Bank can support given the environmental and transparency shortcomings,” a spokesperson of World Band stated.
Last day, the Salvadoran Finance Minister Alejandro Zelaya said the Central American country had sought technical assistance from the World Bank as it seeks to use bitcoin as a parallel legal tender alongside the US dollar.
The minister also said ongoing negotiations with the International Monetary Fund (IMF) had been successful, although the Fund said last week it saw “macroeconomic, financial and legal issues” with the country’s adoption of bitcoin.
Investors have recently demanded higher premiums to hold Salvadoran debt, on growing concerns over the completion of the IMF deal, the key to patching budget gaps through 2023.
“There is no fast track for a solution on an IMF program and even uncertainty on whether the bitcoin proposal is compatible with diplomatic US (or) multilateral relations,” said Siobhan Morden, head of Latin America fixed-income strategy at Amherst Pierpont Securities in New York.
Earlier this month, El Salvador became the first country to adopt bitcoin as legal tender, with President Nayib Bukele touting the cryptocurrency’s potential as a remittance currency for Salvadorans abroad.
“The recognition of a ‘Bukele’ risk premium has probably done some permanent damage to investor sentiment,” Ms. Morden said in her client note.
The market may be focusing too much on the news headlines, however, and not enough on the possibility of a deal with the IMF, said Shamaila Khan, head of EM debt strategies at AllianceBernstein in New York.
“It is important for El Salvador to get the IMF program done. If it was lost on them, they wouldn’t have the conversations. Our view is too much risk is priced in at these levels,” Ms. Morden said.