SAN SALVADOR, June 16 (Reuters) – The World Bank said Wednesday it could not help implement El Salvador bitcoin given its environmental flaws and transparency.
“We are committed to helping El Salvador in many ways, including currency transparency and regulatory processes,” a World Bank spokesman said in an email.
“As the government approached us for help with bitcoin, this is not something the World Bank can support given its environmental shortcomings and transparency.”
Earlier Wednesday, Salvadorian Finance Minister Alejandro Zelaya said the Central American country had sought technical assistance from the Bank as it seeks to use bitcoin as a parallel legal tender alongside the US dollar.
The El Salvador government did not immediately respond to a request from Reuters regarding the World Bank decision.
The minister also said ongoing negotiations with the International Monetary Fund had been successful, although the IMF said last week that it saw “no macroeconomic, financial and legal issues” with the bitcoin country ‘s approval. Read more
Zelaya said Wednesday that the IMF was not “against” the implementation of bitcoin. The IMF did not respond to a request for comment.
Investors have recently demanded higher premiums to hold Salvadoran debt, amid growing concerns over the termination of the deal with the IMF, the key to fixing budget gaps by 2023.
On Wednesday, the bonds traded across the curve, with 2032 issuing more than 2 cents to 96.25 cents on the dollar. The spread of Salvadoran debt to the US Treasury (.JPMEGDELSR) dropped to 705 basis points after hitting a four-month high of 725 bps on Tuesday.
“There is no quick fix to a solution to an IMF program and even uncertainty whether the Bitcoin proposal is in line with US (or) multilateral diplomatic relations,” said Siobhan Morden, head of Latin America’s revenue strategy. fixed at Amherst Pierpont Securities in New York.
El Salvador this month became the first country to adopt bitcoin as a legal tender, with President Nayib Bukele declaring the potential of the cryptocurrency as a remittance currency for Salvadoran overseas. Read more
This month, Bukele also withdrew from an anti-corruption deal with the Organization of American States, which disappointed the U.S. government, as Washington appears to be banning corruption in Central America as part of its immigration policy.
“Recognizing a ‘Bukele’ risk premium has probably done a permanent damage to investors’ sentiment,” Morden said in her client note.
The market can focus too much on 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.
“Importers are important for El Salvador to carry out the IMF program. If I lost to them, they would not make the talks,” she said.
“Our view is that the excess risk is priced at these levels.”
Reporting by Nelson Renteria in San Salvador Written by Drazen Jorgic Edited by Matthew Lewis
Our standards: Principles of Trust of Thomson Reuters.
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