Late last year, El Salvador announced plans to raise US$1 billion using bitcoin-backed bonds. Half of the proceeds would go towards building “Bitcoin City”, with the other half going towards acquiring more bitcoin to add to the country’s balance sheet.
The launch was scheduled for this week, but geopolitics had other plans:
Rollout Happening, but Timing Unclear
According to a Reuters report, El Salvador is looking for the right timing to launch its controversial bitcoin-backed bonds, which apparently could happen sometime between now and March 20, although delays are expected.
We believe that between March 15 and 20 is the right timing; we have the tools almost finished. But the international context will tell us … I didn’t expect the war in Ukraine.
Alejandro Zelaya, finance minister, El Salvador
Finance minister Alejandro Zelaya added further that “we’re still finishing some details, [but] almost everything is ready”:
Uncertainty Prevails
Analysts have had a difficult time predicting the likely demand for the bitcoin-backed bonds, given that sparse details have been provided. It also seems that since the initial announcement, the goalposts have been somewhat shifted:
These bonds started as a sovereign bond; now, it is a securitised corporate bond, which raises the question of success.
Nathalie Marshik, head of emerging markets sovereign research, Stifel Financial
Rather than being issued by the state, reports indicate that the bonds will instead be issued by a state-owned energy company, LaGeo:
It has been argued elsewhere that El Salvador’s radical moves are in large part motivated by a desire for the nation to regain its financial independence from creditors, including global organisations such as the International Monetary Fund (IMF):
Despite El Salvador recording 10 percent GDP growth in 2021 and an increase of 30 percent in tourism over the same period, persistent fiscal deficits and high debt service are leading to large and increasing financing needs.
Republic on an ‘Unsustainable Path’
El Salvador’s adoption of bitcoin as legal tender has always been viewed as controversial and in fact led to a credit rating downgrade of the nation’s sovereign debt. In a January statement, the IMF called on El Salvador to limit the scope of the bitcoin legal tender law, describing the country as being on an “unsustainable path”.
Whatever your view of El Salvador’s embrace of bitcoin, it’s self-evident that President Nayib Bukele is making bold moves, which could end up disturbing the legacy financial system as we know it.
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