Fitch Ratings warns El Salvador’s ‘Bitcoin Law’ will pose risk to local insurers

Fitch warned that mainstreaming Bitcoin without clarity can introduce volatility and operational risks for Salvadorans. 

Fitch Ratings has become the latest global credit rating agency to warn El Salvador against adopting Bitcoin (BTC) as legal tender, expressing concerns that crypto assets could cause systemic risks for the Latin American nation.

Citing the country’s lack of clarity in Bitcoin’s implementation in mainstream markets, Fitch Ratings warned
about the inherent volatility and operational risks for citizens
associated with the crypto ecosystem. In addition, the agency pointed
out El Salvador’s ongoing exposure to low credit quality securities,
stating that “additional holdings of high-risk assets will only compound
this risk.”

In early June, the Salvadoran Legislative Assembly
passed President Nayib Bukele’s controversial “Bitcoin Law,” paving the
way for BTC to be recognized as legal tender
alongside United States dollars starting Sept. 7, 2021. As such, all
Salvadoran businesses will be required to accept Bitcoin in exchange for
goods or services.

Fitch predicts that insurance firms, which
made 21% of El Salvador’s total capital in 2020, will be hesitant to
adopt Bitcoin for claims or benefit payments. The agency speculates that
insurers will likely seek to “convert Bitcoin into USD as quickly as
possible to limit exchange risks” should policyholders opt to pay
premiums in digital currency.

Related: Coercion and coexistence: How El Salvador’s Bitcoin Law may change global finance

While
governments and leaders continue to weigh the pros and cons of
Bitcoin’s move into mainstream finance, El Salvador finance minister
Alejandro Zelaya has assured the International Monetary Fund (IMF) that
the country will continue to use both U.S. dollars and Bitcoin.

Before this development, the country had requested a $1.3-billion loan from the IMF, which has now proved to become a conflict of interest for the United Nations-led organization. Moreover, the World Bank has also backed out from helping El Salvador make Bitcoin legal tender.

source link : https://cointelegraph.com/news/fitch-ratings-warns-el-salvador-s-bitcoin-law-will-pose-risk-to-local-insurers

 

August 17, 2021