• Moody’s downgrades El Salvador’s credit rating and maintains a negative outlook, owing in part to the country’s Bitcoin law

  • Moody’s cut El Salvador’s credit rating and maintained its negative outlook on the country’s economy, citing the government’s approval of a law that will make Bitcoin legal cash in the country.

    Moody’s reduced El Salvador’s long-term, foreign-currency issuer, and senior unsecured ratings to Caa1 from B3 in its rating action.

    The agency said the Bitcoin law and other measures reflected “weakened governance in El Salvador, raising tensions with international partners – including the United States – and jeopardizing progress toward an agreement with the IMF (International Monetary Fund),” citing a “deterioration in the quality of policymaking.”

    El Salvador’s capacity “to access sufficient external funding ahead of bond redemptions,” which begin in January 2023, may be jeopardized as a result of the combined concerns, according to the ratings action.

    The Bitcoin regulation, which takes effect on Sept. 7, mandates that retailers accept Bitcoin in addition to the US currency.

    The law was enacted by a supermajority in El Salvador’s legislature on June 9, with 62 members voting in favor, 19 voting against, and three abstaining. However, it has been met with strong opposition, with some critics claiming it breaches the country’s constitution.

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