Fitch Ratings, an American credit rating agency, stated this week that El Salvador’s adoption of Bitcoin as legal tender alongside the USD in September poses no material direct financial or market risk to its banks. This is due to the fact that no products or services are offered in BTC, implying that there is no direct bank balance sheet exposure, it added.
“Widespread adoption of BTC has been hampered by its inherent price volatility, low financial inclusion in the domestic banking sector, and a lack of widespread internet availability.”
It would depend on the regulations whether Bitcoin adoption would expose banks to increased operational, cyber, and money laundering risks. According to the agency, while the lack of a tax on Bitcoin capital gains in the country may attract foreign inflows of BTC, it may also increase money laundering risks for the country’s financial system. Businesses and banks, in fact, are required to accept payments in BTC, which are converted to USD during the payment process. It has been described as “an economically beneficial development for the tourism sector in rural areas surrounding San Salvador.” “However, the sustainability of growth and future demand remain uncertain,” the report said. Fitch Ratings recommended that El Salvador’s financial institutions follow additional regulatory guidelines and policies regarding money laundering risk management in order to offer digital wallet services or USD-BTC convertibility, thereby creating barriers to entry into the crypto market. It concluded that private customer deposits in the country remained stable, with the exception of a 2.0 percent decrease from May 2021 to September 2021.