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LatinNews Daily - 29 June 2021

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In brief: Fitch warns on bitcoin in El Salvador

* International credit ratings agency, Fitch Ratings, has warned that El Salvador’s recent legislation establishing the cryptocurrency bitcoin as a legal tender would “increase financial institutions’ regulatory, financial and operational risks, including the potential of violating international anti-money laundering (AML) and terrorist financing standards”. The ratings agency warns that while regulators have yet to announce detailed implementation guidance, “the high level of bitcoin price volatility will challenge its use as a store of value and means of payment”. It also warns that bitcoin’s lack of transparency could “increase the risk of money laundering if regulations do not fully comply with Financial Action Task Force (FATF) standards”. Fitch also notes that ongoing discussions with the International Monetary Fund (IMF), which stated that the use of bitcoin as a legal tender “faces macroeconomic, financial and legal issues”, could “weigh on investor confidence”. The Salvadorean government is currently in talks with the IMF over a financial support package to address the impact of the coronavirus (Covid-19) pandemic. Fitch also flags up the fact that the World Bank rejected El Salvador’s request for help in implementing bitcoin, citing “concerns over transparency and the environmental impact of Bitcoin mining”.