Interview | “If you put the agreement with the IMF into play, it would affect the rating”: Jaime Reusche, analyst at Moody’s Investors Service

What motivated El Salvador to make the decision to legalize bitcoin? is one of the questions asked by Jaime Reusche, VP Senior Credit Officer of Moody’s Investors Service and current analyst in charge of the sovereign rating of El Salvador.

Reusche points out that there are more questions than answers to this measure approved by the Legislative Assembly on Tuesday and points out that one of the biggest challenges will be the impact that this decision will have on the agreement that the country is negotiating with the International Monetary Fund (IMF).

What is Moody’s opinion of this change in monetary policy and how could it affect banking and country risk?

For our part, it is not totally clear what led them to the adoption of the law, it seems that the president was looking for economic opportunities to attract investment, but it is not clear how this will attract beyond the possibility that companies may come to mine Bitcoin .

It leaves us many questions about the stability of the monetary system and generates a competition agent for the banking sector, for the financial sector in general. In part, it could be said that it will reduce transaction costs, especially remittances, but the truth was that it was not necessary to legalize bitcoin … there are risks for the financial system, (in addition) transparency and governance risks that they are being negotiated within the framework of the agreement with the Monetary Fund.

Would it affect the negotiations?

It does not seem that the economic authorities consulted the IMF how this would be seen, how the IMF is going to interpret this measure. It is possible that it will result in some questions about the commitment to governance, transparency and control of corruption in the wake of the string of events that we have seen from In Salvador. Even on Friday when President Bukele decided to eliminate (the CICIES) … it is a succession of events that leave more questions than answers, and that may affect the agreement with the IMF.

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In the law, it says that the use of bitcoin is unrestricted, how could it affect the bank?

There are a whole series of questions on the issue of logistics, how quickly are economic agents within the country going to be able to adopt the technology and tools necessary to be able to accept bitcoin as currency and how the government is going to accept those currencies, if you are going to have an electronic wallet …

Does the volatility issue involve additional risk?

As such, anyone who receives bitcoin as a form of payment is extremely vulnerable to currency risk; Most likely, many people want to change those transactions they receive from bitcoin to dollars, and there they are dealing with extreme volatility.

In general, from the point of view of the credit rating due to the risks it presents to the monetary system, the agreement with the Fund and the questions that have to do with transparency and control of corruption, the measure seems to be negative from the first instance and leaves us quite a few questions.

Does this mean it could lead to a downgrade?

Not immediately. Our rating, which is at B3 with a negative outlook, is more subject to what may happen with the Fund’s agreement, because from our point of view the biggest challenge for the government at this time is to cover the financing gap that we estimate. at $ 1,500 million and a good part of that is expected to be covered by the IMF and by the multilaterals that will adhere to the Fund’s program.

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If this measure puts the agreement with the Fund at stake, then, there we would already have an important weight on the rating.

What would be the real impact for the country in terms of inflation?

In terms of inflation it can be a bit uncertain but it limits the creation of credit quite a bit because bitcoin is not inflationary but deflationary beyond the daily movements because there is a limited amount of bitcoins, that is what will inhibit the growth of credit in the creation of more funds for a growing economy, for an economy that seeks to facilitate payments system transactions having an asset so volatile that at the same time it is deflationary, the question is how does that affect the potential for credit growth and economic activity beyond the few investments that it may bring in the short term.

There has been talk of the risks of promoting money laundering. How would it affect the country and how could it control the origin of the funds?

Adopting bitcoin as a local currency goes against the practices that we are seeing that some central banks are trying to establish to establish stable electronic currencies that are a form of payment that works as an extension of monetary policy and that are anchored to a local currency. , that is legal currency. This is 180 (degrees) to what the European Central Bank and banks in developed countries are doing in trying to establish stable, non-volatile electronic currencies as a means of facilitating payments and transactions within the economy.

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Are there other risks?

What is being done is new and brings many risks and leaves many questions, especially on issues of stability, governance and transparency.

The riskiest thing could be the competition it establishes with the dollar for a dollarized system; It could generate certain pressures on the stability of the exchange system as it is replacing the dollar with that highly volatile currency; It could generate liquidity pressure on the financial system as there is not enough availability of dollars and that it begins to use that alternative currency. It is a double-edged bet on what it may mean for the country’s monetary system.

Can this be interpreted as a “de facto de-dollarization”?

It is too early to talk about de-dollarization, we will still have to see how much vigor is adopted within the country. I do not think that many workers, that many (commercial) premises want to accept as the means of payment for the volatility and losses that it could imply if the price falls rapidly as we have seen what happens.

If it is not adopted, certain risks can be mitigated, but if it is adopted quickly and widely it can create negative consequences for internal stability.

We have our eyes on what the consequences may be on how the IMF interprets it, that is the most immediate risk, beyond the medium term, because there is no precedent for this.

Who is it?

Jaime Reusche VP Senior Credit Officer de Moody’s Investors Service
Trajectory: he is the current analyst in charge of the sovereign rating of
The Savior.


  • Moodys
  • qualification
  • sovereign debt
  • bitcóin
  • impact
  • bank
  • inflation
  • risks

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