U.S Senators Look to Mitigate El Salvador Bitcoin Risks to the U.S
In June 2021, El Salvador became the first nation to officially make Bitcoin (BTC) legal tender. As a result, businesses in the country are able to display prices for goods and services in BTC. Residents are also able to pay taxes in BTC. The government’s move was reportedly to support approximately 70% of residents that did not have access to financial services at the time.
Crypto-Asset Risk to Financial Stability a Growing Concern
At the turn of the year, the Bank of England (BoE) raised concerns over cryptos and the possible risks they pose to financial stability. The IMF raised similar concerns earlier this year. Echoing the BoE’s , the IMF called for a global crypto regulatory framework.
Just this week, The Financial Stability Board (FSB) issued a report, talking of risks associated with crypto-assets. Aligned with the BoE and the IMF, the FSB talked of interconnectedness between crypto-assets and financial institutions and core financial markets that could impact global financial stability.
While agencies and regulators have raised concerns amidst increased adoption, the IMF and rating agencies have also been vocal.
Agencies Rebuke El Salvador’s Bitcoin Adoption
Since El Salvador’s move to accept Bitcoin as legal tender, rating agencies and the IMF have raised material concerns.
Late last month, the IMF raised concerns over Bitcoin as legal tender. The IMF warned of large risks associated with “the use of Bitcoin on financial stability, financial integrity, and consumer protection, as well as fiscal contingent liabilities”. Last year, El Salvador had requested a $1.3bn loan, leading to an IMF Executive Board review of El Salvador.
Earlier this month, Fitch Ratings downgraded El Salvador’s sovereign rating to CCC. Among the reasons for the downgrade was the adoption of Bitcoin as legal tender.
U.S Lawmakers Aim to Mitigate El Salvador Bitcoin Adoption Risks
This week, U.S senators targeted El Salvador’s Bitcoin adoption as legal tender. A group of U.S. senators introduced legislation the “Accountability for Cryptocurrency in El Salvador (ACES) Act”.
The bill requires that, “not later than 90 days after the day of the enactment of this Act, the Secretary of State, in coordination with the heads of other relevant Federal departments and agencies, shall submit to the appropriate committees of Congress a report on the adoption by the Government of El Salvador of a cryptocurrency as legal tender”.
In a bid to mitigate the risks to the U.S financial system, the bill also states: “Not later than 90 days after the submittal of the report required by subsection (a), the Secretary of State in coordination with the heads of other relevant Federal departments and agencies, shall submit to the appropriate committees of Congress a plan to mitigate any potential risk to the United States financial system posed by the adoption a cryptocurrency as legal tender in El Salvador; and any other country that uses the United States Dollar as legal tender”.
It remains to be seen how the legislation can mitigate any risks to the U.S financial system.
El Salvador President Nayib Bukele responded to the legislation on Twitter.
You have 0 jurisdiction 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 😉
— Nayib Bukele 🇸🇻 (@nayibbukele) February 16, 2022