El Salvador’s dollar debt is sinking into the Bitcoin bond plan

El Salvador’s dollar-denominated bonds hit all-time lows as the Central American nation’s debt began trading in “suffering territory” this week.

El Salvador’s USD bonds fell 64.4 cents against the dollar on Monday, November 22, after it was announced over the weekend that the Central American country would be using Bitcoin (BTC) bonds to fund its Bitcoin City initiative . Dollar bonds have been falling steadily since April 2021, when they topped $ 1.10, according to Bloomberg data.

A dollar bond is a bond issued outside of the United States by a foreign corporation or government that is denominated in USD rather than local currency.

Monday’s decline resulted in the country’s debt becoming one of the worst performers in global trade, Bloomberg reported. Investors are concerned that President Nayib Bukele prevented the IMF from providing development funds to the country.

Investment bank Stifel Nicolaus CEO Nathalie Marshik commented that “this announcement reinforces the ‘anything but IMF’ path,” before adding that bonds would fall on the unpredictable nature of the policy. ”

Bitcoin Bonds will pay 6.5% annual interest along with 50% of El Salvador’s Bitcoin profit once the initial investment costs for its mining infrastructure are covered. Dividends are paid in USD or Tether (USDT), according to Samson Mow, Blockstream’s Chief Strategy Officer.

Mow believes that Bitcoin bonds will be an alternative way for institutional investors to get exposure to Bitcoin without having to hold Bitcoin themselves. This will also be an opportunity for investors to help El Salvador develop faster. Mow, who worked with the El Salvador government on bitcoin bond development, said Bloomberg TV on 11/23

“We’re trying to structure this so that people can present themselves [the Bitcoin bond] to the Board of Directors and Directors as an Ordinary Loan, as it is an Ordinary Loan. It only happens when a large amount of Bitcoin is bound. “

In a Mow interview with Bloomberg, podcaster and prominent Bitcoin proponent Anthony Pompliano predicted they would be “ridiculously oversubscribed”.

El Salvador has been negotiating a $ 1.3 billion loan with the International Monetary Fund (IMF) since 2021. These negotiations could turn out to be murky as President Bukele decided to fund more local initiatives like building schools in Bitcoins instead of USD.

Related: El Salvador is building 20 “Bitcoin Schools” with excess Bitcoin Believe in

The IMF issued a conclusive statement on El Salvador’s funding application on November 22nd. Although El Salvador’s economy has recovered quickly from the pandemic, the budget deficit and debt servicing high levels of publicity result in major gaps in the services the country can offer.

The report added that efforts to improve financial inclusion and fuel growth are welcome, “but the risks posed by Bitcoin legal tender, new payments ecosystem and Bitcoin transactions need to be addressed.”

“Because of these risks, Bitcoin should not be used as legal tender. The staff recommended restricting the scope of the Bitcoin Act and called for increased regulation and oversight of the new payment ecosystem. “