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World Bank rejects El Salvador request for help on bitcoin implementation

EconomyJun 16, 2021 09:27PM ET
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2/2 © Reuters. El Salvador's Finance Minister Alejandro Zelaya speaks during a news conference in San Salvador, El Salvador June 16, 2021. REUTERS/Jose Cabezas 2/2

By Nelson Renteria and Rodrigo Campos

SAN SALVADOR/NEW YORK (Reuters) -The World Bank said on Wednesday it could not assist El Salvador's bitcoin implementation given environmental and transparency drawbacks.

"We are committed to helping El Salvador in numerous ways including for currency transparency and regulatory processes," said a World Bank spokesperson via 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."

Earlier on Wednesday, Salvadoran Finance Minister Alejandro Zelaya said the Central America country had sought technical assistance from the Bank as it seeks to use bitcoin as a parallel legal tender alongside the U.S. dollar.

El Salvador's government did not immediately respond to a request from Reuters regarding the World Bank's decision.

The minister also said ongoing negotiations with the International Monetary Fund had been successful, although the IMF said last week it saw "macroeconomic, financial and legal issues" with the country's adoption of bitcoin.

Zelaya said on Wednesday the IMF was "not against" the bitcoin implementation. The IMF did not respond to a request for comment.

Investors have recently demanded higher premiums to hold Salvadoran debt, on growing concerns over the completion of the IMF deal, key to patching budget gaps through 2023.

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 this month became the first country to adopt bitcoin as legal tender, with President Nayib Bukele touting the cryptocurrency's potential as a remittance currency for Salvadorans overseas.

This month, Bukele also pulled out of an anticorruption accord with the Organization of American States, which dismayed the U.S. government, as Washington looks to stem 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.

The market may be focusing too much on the news headlines, however, and not enough on the possibility of a deal with the IMF, said Shamaila Khan, head of EM debt strategies at AllianceBernstein (NYSE:AB) in New York.

"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."

World Bank rejects El Salvador request for help on bitcoin implementation
 

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Comments (8)
Yankee Steve
Yankee Steve Jun 16, 2021 10:36PM ET
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Any threat to the USD is s No .. No
Wayne Rollins
Wayne Rollins Jun 16, 2021 9:52PM ET
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I always say i can do better job as reporter than these guys. ... no mention that the CABEI said, an hour ago, that they would help implement bitcoin for them.
Joel Schwartz
Joel Schwartz Jun 16, 2021 9:41PM ET
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Good.
Michael Dell
Michael Dell Jun 16, 2021 9:32PM ET
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El Salvador needs its own currency
Jason Son
Jason Son Jun 16, 2021 8:54PM ET
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El Salvador wants to gamble with Bitcoin to get the helps for their bads.
Eudon Hickey
Eudon Hickey Jun 16, 2021 8:52PM ET
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World bank needs to be shut down. It has done nothing to help the world
Pwr Strk
Pwr Strk Jun 16, 2021 2:05PM ET
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Guanacaxi having second thoughts?
Pwr Strk
Pwr Strk Jun 16, 2021 2:05PM ET
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why are they not calling this bi-monetarism?
Patrick Philippe
PaTT_Philippe Jun 16, 2021 1:44PM ET
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Chuzpe.
 
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