Speculations have risen, questioning whether El Salvador will be able to meet its financial obligations come January. These Rumors ensued when El Salvador bought more of BTC in the recent market crash.
Claims That El Salvador Will Not Pay Debts
There have been ongoing claims stating that El Salvador, a central American-based country, will not be able to meet its next financial obligations. Last year around September, El Salvador made BTC a legal tender and even officially began using it.
In fact, at just that time, Nayib Bukele began buying a lot of BTC during the dips that followed. While BTC has continued plunging, Nayib Bukele still holds his ground and buys more dips.
Nonetheless, some Salvadoran and non-Salvadoran investors began to speculate whether the country would be able to pay its next debts. This is after the recent events noticed in BTC, causing massive price plunges. For instance, BTC is trading at less than half of its all-time high at $68k. As BTC has lost more than 50%, government-issued shares are trading at 40% of their original value.
Volatility, A Flawed Argument Since BTC Always Recovers
When El Salvador first went into Bitcoin, many credit rating networks warned the country about BTC’s volatility. Fitch Ratings said that “Widespread adoption of bitcoin has been limited by its inherent price volatility, the domestic banking sector’s low financial inclusion, and the lack of broad internet availability.”
Many credit rating agencies reduced El Salvador’s credit rating, forcing them to repay with massive interest. The IMF, which was supposed to help the country repay its debt in Jan 2023, noted that El Salvador is exposed to volatility risks. Hence, IMF will likely not help El Salvador repay most of its obligations.
The price plunges noticed in BTC, especially in the times of the Covid pandemic, the Ukraine war, and climate changes contributed to many analytical sentiments on debt repayment. But, this argument is completely flawed.
While BTC is highly volatile around harsh market conditions, it usually recovers. Although many feels like El Salvador will not fulfill its debt obligations, BTC will probably have reclaimed its ATH, maybe even earlier.
While BTC is volatile, paper money has an even deeper problem with reaction to harsh market conditions. For instance, with such extreme conditions as covid rising again, the Ukraine war, and climate change occurring concurrently in the next 30 days, Salvadoran money printers would easily overprint money. Currently, it’s the case with the USD, forcing the feds to increase interest rates to control the USD losing inflation.
However, unlike BTC, which will always recover in a few weeks or months, paper money loses value massively and takes years to recover. In the next few months, when BTC regains its value, El Salvador will be able to repay its debts for sure.
Other Countries Already Going into Crypto
El Salvador’s decision to legalize BTC encouraged other countries to legalize BTC. The Central African Republic parliament recently unanimously passed a bill to use BTC as a legal tender.