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El Salvador expected to default as bitcoin plummets
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| Contributor | RP |
| Last Edited | RP May 11, 2022 04:01pm |
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| Category | Oops |
| Author | Isabella Cota |
| News Date | Tuesday, May 10, 2022 06:15:00 PM UTC0:0 |
| Description | The Salvadoran experiment to make bitcoin legal currency has hit a wall. As a result of the fall in global markets caused by the uncertainty of the war in Ukraine, rising inflation and the US Federal Reserve’s decision to raise interest rates, the price of the most popular cryptocurrency in the world has plummeted more than 50% from its all-time highs. And with it, so too have the bonds of the government of El Salvador, which are trading at 40% of their original value, as investors start to doubt whether the country can meet its next debt payment.
Last September, Salvadoran President Nayib Bukele announced that El Salvador would become the first country in the world to accept bitcoin as legal tender, alongside the US dollar. Ratings agencies warned that the volatility of the cryptocurrency would impact the country’s already fragile public finances. But this did not deter Bukele. In October, he announced that the government had purchased nearly $25 million worth of bitcoin. The following month, Fitch Ratings, an American credit rating agency, warned in a report: “Widespread adoption of bitcoin has been limited by its inherent price volatility, the domestic banking sector’s low financial inclusion and the lack of broad internet availability.” |
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