The rating agency Fitch warned that El Salvador’s move to authorize Bitcoin as legal tender could open floodgates to money laundering and increase banks’ exposure to regulatory risks. According to the rating agency, Banks may find it more difficult not to fall afoul of rules regulating money laundering and terrorism financing with bitcoin being made a legal tender.
The law “would increase financial institutions’ regulatory, financial and operational risks.
The new law, which is set to take place on 7 September, “would increase financial institutions’ regulatory, financial and operational risks, including the potential of violating international anti-money laundering and terrorist financing standards,” the agency said. The possibility of using Bitcoin for all obligations, including bank loans, could see the cryptocurrency funneled into El Salvador, which “may increase the risks that proceeds from illicit activities pass through the Salvadoran financial system.” Fitch said regulations need to fully comply with global standards set by the Financial Action Task Force (FATF), given that “Bitcoin’s lack of transparency could increase the risk of money laundering.”
El Salvadoran president says bitcoin use is optional.
As reported earlier, El Salvadoran president Nayib Bukele said that Bitcoin use would be optional last week and that anyone receiving a Bitcoin payment could choose to automatically convert it into US dollars, which has also been legal tender in the Central American country for two decades. The President has said Bitcoin could be used for international transfers, a key point in a country. Around one-fifth of the gross domestic product was derived from funds received from abroad in 2019, according to the World Bank’s data.