'Cryptocurrency' legal in El Salvador, a new 'headache' for banks

The Central American country of El Salvador has recently passed a new law in the country to consider cryptocurrencies as legal currency. Due to this a new headache has arisen for Banks

'Cryptocurrency' legal in El Salvador, a new 'headache' for banks

These days there is a lot of turmoil in the world regarding cryptocurrencies. Sometimes a tweet by Tesla's chief Elon Musk is creating a vast difference in its value, and sometimes China's taking strict measures against it is increasing concern around the world, meanwhile, recently a Central American country Salvador has passed a law making cryptocurrencies a legal tender. Due to this now a new problem has arisen for banks around the world.

Increased risk of money laundering

According to the news of PTI, rating agency Fitch has issued a report regarding this. The report said that El Salvador's treating bitcoin as a legal tender has posed a lot of risks to banks. This includes violation of laws made to prevent money laundering, terror funding, etc.

To be effective from 7 September

El Salvador's decision to consider bitcoin a legal tender is to take effect from 7 September. Fitch says this will increase regulatory, financial and operational risks for financial institutions.

Fitch has said in its report that the prospect of using bitcoin for everything from lending to everything is causing concern. This could increase bitcoin traffic from El Salvador and increase the risk of illegal activities in Salvador's financial system.

Bitcoin use will be optional

El Salvador President Nayib Bukele said on Thursday that the use of bitcoin would be optional. This means that the person who receives the payment with bitcoin can automatically convert it into US dollars. The dollar has been legal tender in El Salvador for the past two decades.

Fitch says that the rules for making bitcoin a legal tender should fully comply with the Global Standards of the Paris-based Financial Action Task Force. Because bitcoin lacks transparency and can increase the risk of money laundering.