Fitch Ratings Criticized El Salvador's Bitcoin Policy

Fitch Ratings criticized El Salvador's Bitcoin policy. The organization disapproved of El Salvador's officialization of Bitcoin.

El Salvador's enactment of the proposal accepting Bitcoin as legal currency in early June has garnered negative criticism from US organizations. After the International Monetary Fund (IMF), now the rating agency Fitch Ratings, stated that this decision will have a negative effect on local insurance companies in the country.

There are Regulatory and Implementation Risks

In addition, Fitch commented that Bitcoin has not yet started to be used much around the world, that it is still not defined by regulatory institutions, therefore, risks will arise within the framework of regulations and implementation in a country like El Salvador that accepts it as a legal currency. In its assessment, Fitch Ratings stated that Bitcoin is not expected to be widely used by insurance companies, neither for paying profits nor for issuing policies. The following statements were used in the press release on the subject: “The risks inherent in Bitcoin depend on whether it is widely used by policyholders. If policyholders choose to pay in Bitcoin, insurance companies will likely convert Bitcoin to US dollars to mitigate risks.” The insurance industry in El Salvador is currently supported by low-rated government bonds. In a statement, Fitch said that adding other high-risk assets to these assets will do nothing but increase this risk. To recall, the law that was passed by the El Salvador Assembly on June 9 and designating Bitcoin as a legal currency in the country will go into effect on September 7.