On Monday, bitcoin will celebrate its sixth month as legal tender in El Salvador, and according to Alejandro Zelaya, minister of finance, the government of Nayib Bukele is preparing the first cryptocurrency bond issue.
The issuance of the “Volcano Bonds” will serve to finance the Bitcoin City project, announced by Bukele in November 2021 during the closing of the Bitcoin Week event, which was held in the country.
The bitcoin city, according to the president, will be built near the Conchagua volcano, in the department of La Unión, to harness its energy to power the city and bitcoin mining.
The issuance of bitcoin bonds being prepared by the government of El Salvador is the first to be carried out, but it will comply with what is necessary to guarantee the security of investors, say authorities.
The bitcoin bonds could open up a new avenue of financing for El Salvador , but it could also complicate the situation much more if their sale fails.
If this scenario comes true, it would show that El Salvador has found an alternative source of financing to multilateral organizations.
Currently, the government of El Salvador is also negotiating with the International Monetary Fund for a loan of US$ 1 billion, but so far there has been no agreement on the disbursement.
In fact, the IMF considers that the use of bitcoin as legal tender implies “great risks” due to its high volatility, so it suggests limiting the scope of the law and urgently strengthening the regulation and supervision of the payment system. The government of El Salvador disagreed with this assessment.
In a November 2021 report, the multilateral agency warned the government about the possible growth of public debt exceeding 95% of Gross Domestic Product (GDP) by 2026 due to the “absence of decisive economic policy measures to correct fiscal imbalances and alleviate these constraints to growth.”
