President of El Salvador Nayib Bukele
Rolan Barrientos/APHOTOGRAFIA/Getty Images
According to Moody’s Ratings Agency, El Salvador’s bitcoin buying spree might increase the country’s credit risks if it continues.
Jaime Reusche, Moody’s analyst, said that the country’s government, headed by President Nayib Bukele, has had liquidity problems in the past. This makes trading bitcoin “quite dangerous”, she explained.
According to an analysis, El Salvador has around 1,391 bitcoins in its bank accounts. “If it gets higher, then that presents an even greater risk to repayment capability and the fiscal profile the issuer,” Reusche stated. Insider’s request to comment was not immediately answered by Moody’s.
El Salvador has a bond worth $800 million due to mature in January 2023. Moody’s downgraded El Salvador’s credit rating from CAA1 to CAA1 in July 2017. This means that it is at very high risk of defaulting on its loans. The downgrade was prompted by a “challenging redemption plan” and “a deterioration of policymaking.”
The country made bitcoin legal last year and announced in November that it would launch a $1Billion, 10-year bitcoin bond via Blockstream.
Moody’s suggested that crypto bonds could be used to help the country pay its debt. However, Moody’s said that unless Bitcoin bonds are well-received and oversubscribed, it is becoming more likely that they will need to restructure traditional market bonds.
Following a hawkish US Federal Reserve report, cryptocurrencies have been in a major slump. Bitcoin traded at $42,283.80 as of Friday morning in New York, a drop of approximately 40% from its peak of $69,000 last year.
President Bukele is well-known for trading cryptocurrency on his smartphone. The recent sale of El Salvador’s bitcoin holdings may have cost El Salvador approximately $10 million. The actual performance and results of El Salvador’s crypto portfolio are not known.