El Salvador’s U.S. dollar debt plunges due to Bitcoin bond program

El Salvador’s dollar-denominated bonds have fallen to an all-time low as the Central American country’s debt began trading in “distressed areas” this week.

On Monday, November 22, the exchange rate of El Salvador’s U.S. dollar bonds against the U.S. dollar fell to 64.4 cents, after the news that Central American countries will use Bitcoin on the weekend (Bitcoin) Bonds provide funding for its Bitcoin City program. The US dollar bond has been falling steadily since it broke through US$1.10 in April 2021. Bloomberg data.

U.S. dollar-denominated bonds are bonds issued by foreign companies or governments outside the U.S. and are denominated in U.S. dollars rather than their local currency.

According to Bloomberg News, Monday’s fall has caused the country’s debt to become one of the worst performing countries in global transactions. Investors worry that President Nayib Bukele will shut out the International Monetary Fund and will not be able to provide development fund assistance to the country.

Nathalie Marshik, managing director of investment banking firm Stifel Nicolaus, commented that “this statement strengthens the path of’anything except the IMF’” and then added that bonds are falling, “because the market has reassessed the value of possible recovery, Because of its unpredictable policy.”

Once the initial investment cost of its mining infrastructure is recovered, the Bitcoin bond will pay 6.5% of the annual interest, in addition to 50% of El Salvador’s Bitcoin income. Samson Mow, Blockstream’s chief strategy officer, said that dividends will be paid in U.S. dollars or Tether (USDT).

Mow believes that Bitcoin bonds will become another way for institutional investors to access Bitcoin without having to hold them. This will also be a way for investors to help El Salvador develop faster.Mow, who has been working with the government of El Salvador to develop bitcoin bonds, told Bloomberg TV November 23,

“We try to build it in a way that people can present [the Bitcoin bond] The board of directors and directors are treated as ordinary bonds because they are ordinary bonds. It happens to be bound to a large amount of Bitcoin. “

In response to Mow’s interview with Bloomberg, Podcaster and popular Bitcoin advocate Anthony Pompliano predicted that they would be “ridiculously oversubscribed.”

El Salvador has been negotiating with the International Monetary Fund (IMF) for a possible $1.3 billion loan for most of 2021. As President Bukele decides to use Bitcoin instead of U.S. dollars to fund more local projects, such as school construction, these negotiations may gradually disappear.

related: El Salvador will use the surplus of the Bitcoin Trust Fund to establish 20 “Bitcoin Schools”

International Monetary Fund releases conclusion statement Regarding El Salvador’s funding request on November 22. It stated that although El Salvador’s economy has quickly rebounded from the pandemic, fiscal deficits and high public debt services are creating greater loopholes in the services that the country can provide.

The report added that efforts to improve financial inclusion and increase growth are welcome, “but the risks arising from Bitcoin as a legal tender, a new payment ecosystem and Bitcoin exchanges should be addressed.”

“Because of these risks, Bitcoin should not be used as legal tender. The staff suggested reducing the scope of Bitcoin laws and urged to strengthen the supervision of the new payment ecosystem.”