Tuesday, July 27, 2021

World Bank Refuses To Support El Salvador’s Bitcoin Integration

The World Bank has refused to assist El Salvador with the integration of Bitcoin into its society stating concerns of environmental and transparency concerns.

“We are committed to helping El Salvador in numerous ways including for currency transparency and regulatory processes,” a spokesperson from the World Bank is quoted saying, according to a Reuters report. The comments come as the Middle American country reportedly reached out to the institution to ask for support. “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,” the spokesperson said.

The World Bank is an international financial institution that provides loans to low- and middle-income countries. As its mission, it states the pursuit of “sustainable solutions that reduce poverty and build shared prosperity in developing countries.”

The argument of Bitcoin’s climate impact, while highly disputed, is a persistent one that has gained steam in recent months. Yet the World Bank itself has come under fire from critics bringing up its own environmental shortcomings.

Yesterday the Salvadoran Finance Minister Alejandro Zelaya said El Salvador had sought technical assistance from the Bank as it seeks to use bitcoin as a parallel legal tender alongside the U.S. dollar. The minister also said ongoing negotiations with the International Monetary Fund (IMF) had been successful, even when the IMF said last week it saw “macroeconomic, financial and legal issues” with the country’s adoption of bitcoin. Although Alejandro Zelaya made it clear yesterday that the IMF was “not against” the bitcoin implementation.

In the debt market, investors have recently started demanding higher premiums to hold Salvadoran debt because of concerns over the completion of the IMF deal which is key to patching budget gaps through 2023. Bonds sold off across the curve, with the 2032 issue down more than 2 cents at 96.25 cents on the dollar. The spread of Salvadoran debt to U.S. Treasuries dipped to 705 basis points after hitting on Tuesday a four-month high of 725 bps.

Recall that El Salvador became the first country to adoption as legal tender with President Nayib Bukele pushing the idea that cryptocurrencies have potential as a remittance currency for Salvadorans overseas. He also stated that 70% of the El Salvadoran population do not have bank accounts and Bitcoin as a legal tender helps to facilitate banking the unbanked.

Siobhan Morden, head of Latin America fixed-income strategy at Amherst Pierpont Securities in New York stated, “There is no fast track for a solution on an IMF program and even uncertainty on whether the bitcoin proposal is compatible with diplomatic U.S. (or) multilateral relations.”

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