El Salvador will issue bitcoin bonds in March

The Minister of Finance, Alejandro Zelaya, reported that El Salvador is scheduled to issue bitcoin bonds in March of this year, bonds that were announced by the president, Nayib Bukele, in November of last year.

“Approximately in March, we are going to be leaving. The first 15 days of March, we are scheduled to finish everything necessary for the bond to be issued. We are taking all the safeguards” — Alejandro Zelaya, Minister of Finance.

The minister explained that they have had conversations with people who know all the compliance requirements, reiterating that all the regulations for the issuance of securities on a sovereign bond must be complied with, since it is regulated.

He indicated that there is verification being made of the flows of bond buyers, to prevent them from falling into illicit activities.

Zelaya was asked if the risk around this operation had been measured, to which the official assured him that “absolutely yes”, since they have worked on each of these risks to minimize them.

Regarding the volatility of the currency, the minister said that when one system replaces another, or is in opposition to the traditional system, it will be evident that it will be influenced by decisions of the traditional system that already has a role in the market.

The announcement of the bitcoin bond issue was made last November, during the presentation of the “Bitcoin City” project, where President Bukele revealed a special bond issue in 2022 called “Volcano Bond”.

At the same event, Samson Mow, director of strategy at Blockstream, announced the issuance of $1 billion in bitcoin bonds.

At the time, it was said that half of the funds from these bonds would be converted into bitcoin, with the other half invested in geothermal-focused bitcoin mining and infrastructure.

El Salvador is under the scrutiny of agencies such as Moody’s Investors Service, which recently warned that if a financial assistance agreement is not reached with the International Monetary Fund (IMF), the country will face a liquidity risk.

“Without IMF financing, the government will need to implement strong fiscal tightening by significantly reducing spending this year in preparation for its $800 million bond due in January 2023” Moody’s said in a statement.

What is feared is that El Salvador’s public debt will reach 87% of the GDP in 2023, and that it will reach 90% if this issuance of bitcoin bonds materializes.

The IMF published a report last week and in its article IV it pointed out that increasing public debt to invest in bitcoin “with the expectation of its continuous increase in price, while synchronizing the market to acquire bitcoin, is not a permanent solution to ease financial constraints.”

And it was the same IMF mission chief in El Salvador, Alina Carare, who indicated that using volatile and “unstable” assets as collateral brings risks. The entity’s spokeswoman recommended an analysis in this regard, since the authorities “have not underlined the operational details.”

Zelaya clarified during a morning interview on Monday that the IMF made clear its position of maintaining a strong relationship with El Salvador. He stated that it is “false” that the fund asks to eliminate bitcoin as legal tender, because, according to the minister, what is being asked for is to “evaluate”.

He pointed out that the IMF is not making a difference to the government of President Bukele by pointing out “some weaknesses in El Salvador’s public finances”, but rather it is taking up all the economic history of the country with previous governments.

“I think that we have very good negotiations with the fund. We have a very good relationship. When there is something that we do not agree with, we tell each other, and I think that is important because it allows us to clarify or advance much faster on the points that we do agree with” said the Minister of Finance.

The official ruled out that bitcoin is a factor that has stopped the negotiations with the fund, and clarified that it is a factor of “risk analysis and mitigation like any other.”