The Bitcoin transactions carried out by the government of El Salvador are contributing to weakening the country’s already low credit rating and signaling a growing likelihood of default, Jaime Reusche, analyst at agency Moody’s, has noted in an interview with Bloomberg.
The fact that the government holds some of the assets in the leading cryptocurrency “definitely adds to the risk portfolio,” he said. He has stressed that transactions with digital assets pose a threat, especially for the state, which “in the past experienced difficulties with liquidity.”
The El Salvador Bitcoin Fund currently has 1,241 BTC on its balance sheet. Reusche has stressed that the government’s investment is not large enough to deprive it of the ability to meet its obligations. However, he thinks the likelihood of such a threat will increase if the country’s president Nayyib Bukele does not change the course of monetary policy. He said:
“If it [the volume of the fund] becomes much higher, it will pose an even greater risk to the issuer’s solvency and fiscal profile.”
Moody’s has also noted the high yield (over 35%) of Bitcoin bonds issued in November last year closed the government’s access to foreign markets, and the absence of an agreement with the International Monetary Fund (IMF) increases the risk of default in the country.