U.S. senators Jim Risch, Bob Menendez, and Bill Cassidy ranking member and chairman of the Senate Foreign Relations Committee, proposed the Accountability for Cryptocurrency in El Salvador (ACES) Act which would require the State Department to analyze and work on a report on El Salvador's Bitcoin Law allowing the adoption of Bitcoin as legal tender and propose a way to reduce risks to the U.S. financial system.

In a press release, senators say the legislation they proposed, gives the State Department 60 days to produce the report on the Central American country's adoption of Bitcoin, should the bill pass. According to the law, businesses that have technological means can accept payment in Bitcoin. To assist the citizens to start using cryptocurrency, the government gave $30-worth of the cryptocurrency for free to citizens in their wallets called Chivo.

On Wednesday a statement got published where Jim Risch said, "El Salvador's adoption of Bitcoin as legal tender raises significant concerns about the economic stability and financial integrity of a vulnerable U.S. trading partner in Central America,". He added, "This new policy has the potential to weaken U.S. sanctions policy, empowering malign actors like China and organized criminal organizations,". Risch urged that bipartisan legislation is looking for greater clarity on El Salvador's policy and the administration should work on reducing potential risk to the U.S. financial system.

Last year in June, El Salvador was the first nation to officially declare Bitcoin (BTC) legal tender which resulted in businesses in the country displaying prices for goods and services in BTC. Residents of the country could pay taxes in BTC. In September 2021, the law that Bitcoin cryptocurrency, which is biggest by market cap, will be accepted as legal tender was passed in El Salvador, which is again a tiny, impoverished country in Central America. The IMF Executive Board reviewed El Salvador after it requested a $1.3bn loan last year.

At the end of last year, the Bank of England (BoE) expressed concerns over cryptos and the possible risks it may create to financial stability, and beginning of this year, IMF raised the same material concerns along with rating agencies.  BoE’s and IMF together called for a global crypto regulatory framework. This week a report on risks related to crypto-assets got issued by the Financial Stability Board (FSB). In line with the BoE and IMF, the FSB stressed the importance of the interconnectedness between crypto-assets, financial institutions, and core financial markets. 

Indrani Bose

CBW - External Analyst

INDIA