El Salvador government prepping for 20 bills structurize and build legal framework for Bitcoin bonds
The El Salvadorean government, led by its President Nayib Bukele, has announced moving ahead with plans of issuing Bitcoin bonds through a set of 20 bills aimed at providing a legal framework for them.
Alejandra Zelaya, Head of the Treasury has told the local media house El Mundo on January 4 that the upcoming 20 bills are sought to cover regulations about issuing securities as cryptocurrency for ensuring the viability of the Bitcoin bonds that had been proposed in November 2021.
Zelaya said that the bills would provide “a legal structure” and “legal certainty” to all the citizens who buy the Bitcoin bond.
However, he hasn’t proposed a specific timeframe for the legislation’s submission to lawmakers.
The $1 billion sought by the bond issuance would be utilized for funding the Bitcoin City initiative, which President Bukele promised would be delivering digital and technological education, efficient and sustainable public transport and geothermal energy for the entire city.
One of the features of the Bitcoin City is the Bitcoin mining operation that would harness the geothermal power generated by a volcano for powering the mining rigs, thus leading to the bonds being dubbed “Volcano Bonds.” The mining operation had mined its first 0.00599179 Bitcoin on October 1, 2021.
Funds from the bond issue are also sought to pay down an $800 million Eurobond issue that is due maturity in January 2023.
Zelaya further told El Mundo that the country would be needing to find financiers for helping fill their obligation to pay off the Eurobonds that could come from either the Bitcoin bonds or from the “institutional offers from various investment banks,” rather than another Eurobond issue.
He shared that they can simply make payments without having to create another Eurobond in the traditional market, and then they can find a bond that is “denominated in dollars and receives payment in Bitcoin.”
A Eurobond is a debt tool for countries in order to raise funds in a denomination other than its native currency.
Zelaya has also indicated that there is “significant interest” in the Bitcoin bond from investors as it is offering exposure to Bitcoin as well as a 10-year maturity of 6.5 per cent interest.
However, issuing the Bitcoin bonds would not preclude the El Salvadorean nation from participating in traditional finance. Zelaya iterated that they are “not going to abandon the traditional market.”
Notable partners of the El Salvador government in the creation of the Volcano Bonds include Blockstream and iFinex, blockchain developers who are closely related to stable coin Tether (USDT). The bonds are expected of issuance on the Blockstream’s Liquid Network and processed by iFinex.
President Bukele had tweeted in his predictions dated January 2 that Bitcoin City would “commence construction,” and that Volcano bonds would be “oversubscribed.”