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Fitch Ratings agency is giving a warning. Bringing BitCoin into El Salvador’s financial system can be dangerous.

Fitch Ratings agency is giving a warning. Bringing BitCoin into El Salvador’s financial system can be dangerous.
Fitch warned that mainstreaming Bitcoin could introduce volatility and operational risk for Salvadorans.

Fitch Ratings has become the latest global rating agency to warn El Salvador against adopting Bitcoin (BTC) as legal means of payment, voicing concerns that crypto assets could cause systemic risk for the country.

Citing the lack of clarity in Bitcoin’s implementation in major markets, Fitch Ratings has warned of the inherent volatility and operational risk for citizens associated with the cryptocurrency ecosystem.

In addition, the agency noted El Salvador’s ongoing exposure to low-credit-quality securities, stating that “the additional possession of high-risk assets such as BitCoin will only increase this risk.”

In early June, the Salvadoran Legislative Assembly passed President Nayib Bukele’s controversial “Bitcoin Act”, paving the way for BTC to be recognised as legal means of payment alongside US dollarsfrom September 7, 2021. Accordingly, all Salvadoran companies will be required to accept Bitcoin in exchange for goods or services.

Fitch predicts that insurance companies, which accounted for 21% of El Salvador’s total capital in 2020, will be reluctant to accept Bitcoin for claims or payment of benefits. The agency speculates that insurers will likely try to “convert Bitcoin to USD as soon as possible to reduce currency risk” if policyholders choose to pay premiums in digital currency.

While governments and leaders continue to weigh the pros and cons of introducing Bitcoin into mainstream finance, El Salvador’s Finance Minister, Alejandro Zelaya, assured the International Monetary Fund (IMF) that the country would continue to use both US dollars and Bitcoin.

Prior to this event, the country requested a $ 1.3 billion loan from the IMF, which has now proved to be a conflict of interest for the UN-led organization. Moreover, the World Bank has also pulled back from helping El Salvador make Bitcoin a legal means of payment .

20-08-2021, Mr Advice TEAM

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