Ratings Agency Warns Over El Salvador Bitcoin Move

Rating agency Fitch has warned of greater risks for banks due to an El Salvador law that makes Bitcoin legal tender in the country.

Banks may find it more difficult not to fall afoul of rules regulating money laundering and terrorism financing, Fitch said.

The move, which is set to take place on 7 September, “would increase financial institutions’ regulatory, financial and operational risks, including the potential of violating international anti-money laundering and terrorist financing standards”, the agency said.

‘Lack of transparency’

The possibility of using Bitcoin for all obligations, including bank loans, could see the cryptocurrency funnelled into El Salvador, which “may increase the risks that proceeds from illicit activities pass through the Salvadoran financial system”.

Fitch said regulations need to fully comply with global standards set by the Paris-based Financial Action Task Force (FATF), given that “Bitcoin’s lack of transparency could increase the risk of money laundering”.

Salvadoran president Nayib Bukele said last week that Bitcoin use would be optional, and that anyone receiving a Bitcoin payment could choose to automatically convert it into US dollars, which has also been legal tender in El Salvador for two decades.

Bukele has said Bitcoin could be used for international transfers, a key point in a country where one-fifth of the gross domestic product derived from funds received from abroad in 2019, according to the World Bank.

Volatility

The best-known cryptocurrency continued its slide of recent weeks on Friday, closing down 7.37 percent to $32,094.44 (£23,000), a loss of $2,554.88 from its previous close.

The latest plunge brought Bitcoin down 50.5 percent from its year’s high of $64,895.22 on 14 April.

Ether dipped 6.97 percent to $1,850.91, down $138.72 from its previous close.

Bitcoin began its current slide in May after China vowed to crack down on cryptomining in the country.

Last week the cryptocurrency briefly fell below $30,000 for the first time since January.