New US Bill to investigate El Salvador's bitcoin decision

El Salvador declared bitcoin as a legal tender in September 2021. The bold move causes unhappiness as expressed by some global organisations. The latest is the US senate wants to introduce a bill to investigate this decision of El Salvador. The article covers the reactions of the IMF/World Bank, Rating Companies and the new suggested US Bill. It will then conclude with the reaction of El Salvador's president, Nayim Bukele.

IMF / World Bank

The Washington-based International Monetary Fund (IMF) warned El Salvador numerous times against using Bitcoin as legal tender and condemned the adoption of the cryptocurrency. The reason why the IMF has urged El Salvador to drop bitcoin is that it could pose large risks to its financial and market integrity, and financial stability. The World Bank has also rejected the country’s request for assistance in implementing its Bitcoin Law before the September 2021 date stating alleged environmental and transparency issues.

Credit Ratings

The credit rating agency believes El Salvador’s Bitcoin experiment has elevated the country’s risk profile and could limit its access to foreign debt markets. According to them it “certainly adds to the risk portfolio” of a country that has struggled with liquidity issues in the past and the accumulation of more bitcoin will only increase El Salvador’s risk of default.
In addition to downgrading El Salvador’s credit rating, Moody’s has warned that the country’s so-called Bitcoin volcano bond could limit its access to foreign bond markets. Fitch has already downgraded its rating into junk territory citing an $800 million bond that is near its due date. Moody’s also warned that the country’s so-called Bitcoin volcano bond could limit its access to foreign bond markets.

The proposed US Bill

A bipartisan group of senators introduced legislation in the United States Senate that seeks to mitigate perceived risks posed by El Salvador’s adoption of Bitcoin ( BTC) as a legal currency. Senators Jim Risch, Bob Menendez and Bill Cassidy put forward the proposed legislation calling on the State Department to submit a report on the implementation of bitcoin in El Salvador with the purpose of assessing the risks it poses to the U.S. economy. They also expressed fear over the fact that adopting bitcoin could weaken the U.S. government's sanctions policy on the Central American country and increase the activity of criminal organizations. It is important according to them that the US must maintain the status of the dollar as the global reserve currency. Senator Risch wrote that “El Salvador’s adoption of Bitcoin as legal tender raises significant concerns about the economic stability and financial integrity of a vulnerable U.S. trading partner in Central America.” Sen. Cassidy's statement suggested the bitcoin move might open the door to illicit activities in the region, and emphasized the US must maintain the status of the dollar as the global reserve currency.

The proposed Accountability for Cryptocurrency in El Salvador Act (ACES) aims to “mitigate potential risks to the U.S. financial system”. The first part of the report would assess how El Salvador developed and enacted the Bitcoin Law, how El Salvador will “mitigate the financial integrity and cyber security risks” from digital assets, whether it meets Financial Action Task Force requirements, the impact on individuals and businesses, and the effect crypto will have on its economy. The next part of the report would describe El Salvador’s internet infrastructure and assess “the degree to which cryptocurrency is used” there, custody of funds, the potential for hacks, and the rate of financial access underprivileged or unbanked Salvadorans enjoy.
Following the issuance of these reports, the bill would stipulate action plans from various agencies based on the findings.

If the bill passes, federal agencies have 60 days to submit a report that assesses the Central American nation’s abilities regarding cybersecurity and financial stability.

Bukele's reaction

President Nayib Bukele asked U.S. senators to stay out of El Salvador's "internal affairs". On Twitter, he said: "Ok boomers… You have 0 jurisdictions on a sovereign and independent nation, We are not your colony, your back yard or your front yard. Stay out of our internal affairs. Don’t try to control something you can’t control." He also tweeted the El Salvador flag with the words "Land of the Free."

Sources:
https://cointelegraph.com/news/bukele-s-bitcoin-trade-raises-el-salvador-s-sovereign-credit-risk-moody-s
https://cointelegraph.com/news/imf-urges-el-salvador-to-remove-bitcoin-s-status-as-legal-tender