No assistance for El Salvador’s bitcoin implementation could be provided by it because of environmental and transparency drawbacks, the World Bank said on Wednesday.
“We are committed to helping El Salvador in numerous ways including for currency transparency and regulatory processes,” said a World Bank spokesperson to the media in an email. “While the government did approach us for assistance on bitcoin, this is not something the World Bank can support given the environmental and transparency shortcomings,” the spokesperson added.
The Salvadoran Finance Minister Alejandro Zelaya said earlier on Wednesday that technical assistance from the World Bank had been sought by the Central America country in its efforts to make use of bitcoin as a parallel legal tender along with the US dollar.
There were no comments available from El Salvador’s government on the World Bank’s decision.
The ongoing talks with the International Monetary Fund were fruitful, the minister also said, even though the IMF said last week that it saw “macroeconomic, financial and legal issues” with the decision of the country to adopt bitcoin as a legal tender.
The IMF was “not against” the bitcoin implementation, Zelaya said on Wednesday. There were no comments on the issue available from the IMF.
Because of growing concerns over the completion of the IMF deal, which is crucial for filling up budget gaps by 2023, higher premiums to hold Salvadoran debt have been recently demanded b investors.
On Wednesday, bonds sold off across the curve, with the 2032 issue down more than 2 cents at 96.25 cents on the dollar. The spread of Salvadoran debt to U.S. Treasuries dipped to 705 basis points after hitting on Tuesday a four-month high of 725 bps.
“There is no fast track for a solution on an IMF program and even uncertainty on whether the bitcoin proposal is compatible with diplomatic U.S. (or) multilateral relations,” said Siobhan Morden, head of Latin America fixed-income strategy at Amherst Pierpont Securities in New York.
El Salvador had announced earlier this month its decision to adopt bitcoin as legal tender which made it the first country in the world to do so. Butcoin’s potential as a remittance currency for Salvadorans overseas was also touted by the country’s President Nayib Bukele.
Bukele pulled the country out of an anticorruption accord with the Organization of American States earlier this month which was criticised by the US government with it trying to put a curb on corruption in Central America as part of its immigration policy.
“The recognition of a ‘Bukele’ risk premium has probably done some permanent damage to investor sentiment,” Morden said in her client note.
Shamaila Khan, head of EM debt strategies at AllianceBernstein in New York, said that there was too much focus of the market on news headlines and it did not pat enough attention to the possibility of a deal with the IMF.
“It is important for El Salvador to get the IMF program done. If it was lost on them, they wouldn’t have the conversations,” she said.
“Our view is too much risk is priced in at these levels.”
(Adapted from Reuters.com)