Bitcoin drops the value of El Salvador bonds to a minimum
El Salvador’s dollar bonds fell to 64.4 US cents on Monday, November 22, following the weekend news that the Central American country would use bitcoin bonds to finance its Bitcoin City initiative. Dollar bonds have fallen steadily since April 2021, when they exceeded $ 1.10. Monday’s drop resulted in the country’s debt becoming among the worst in global trade. Investors are concerned that President Nayib Bukele has ruled out intervention by the International Monetary Fund with development funds.
The bitcoin bond will pay 6.5% annual interest in addition to 50% of El Salvador’s bitcoin earnings once the initial investment costs for its mining infrastructure have been recovered. Dividends will be paid in USD or Tether (USDT), according to Samson Mow, Blockstream’s Chief Strategy Officer.
The IMF released a concluding statement on El Salvador’s funding application on November 22. Although El Salvador’s economy has recovered rapidly from the pandemic, fiscal deficits and high public debt services are creating bigger holes than the country can sustain.
The report added that efforts to improve financial inclusion and increase growth are welcome, “but the risks posed by bitcoin as legal tender, the new payments ecosystem and bitcoin trading should be addressed.”
“Due to these risks, bitcoin should not be used as legal tender. The staff recommends narrowing the scope of bitcoin and urges the strengthening of the regulation and supervision of the new payment ecosystem.
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