One of the largest rating agencies in the U.S., Fitch Ratings, has downgraded El Salvador’s long -term rating further following the risk of making bitcoin a legitimate tender as the main reason. "The use of bitcoin as a legal tender has added uncertainty about the potential of program funding for 2022-2023."
El-Salvador's rating has been downgraded to one of the worst from "B-" to "CCC" recently. The American credit rating agency Fitch is one of the giant credit rating agencies. The other two are Moody’s and Standard & Poor’s (S&P).
For Fitch, bonds rated AAA, AA, A or BBB are considered investment grade, while bonds rated BB, B, CCC, CC, C or D are considered speculative bonds or non -applicable grade. The company explained that the CCC rating means “Significant credit risk” with “Very low Margin for security,” and that “Failure is a very high probability.”
In Fitch’s view, institutional weakness and the concentration of power in the presidency have increased policy uncertainty, and the use of bitcoin as a legitimate tender has added uncertainty about the IMF’s availability to offer funding.
In July, Moody’s Investors Service downgraded its valuation from B3 to Caa1. According to the agency, views on El-Salvador remain negative.
The IMF recently urged El Salvador to drop bitcoin as a legitimate tender. The IMF also wants El Salvador to eliminate the use of its funds used for conversions between bitcoin and the dollar, stating the cost of adopting bitcoin as a national currency outweighs the interest. El Salvador, however, rejected the IMF’s call to set aside bitcoin as a legitimate tender.
