- El Salvador has prepared 20 bills to provide the legal and financial framework for its $1B Bitcoin bond issuance.
- Funds from the bond will be used to develop the proposed Bitcoin City and pay down the nation’s $800M Eurobond.
El Salvador, under the leadership of President Nayib Bukele, is moving forward with its Nov. 2021 plans to issue Bitcoin (BTC) bonds. The country has now prepared 20 bills to provide a financial and legal framework for the bonds.
While speaking to the Salvadorian media El Mundo, Head of Treasury Alejandra Zelaya, said the bills cover rules on issuing securities as cryptocurrency. This, he says, will guarantee the viability of the Bitcoin bonds:
[This is] to provide a legal structure and legal certainty to everyone who buys the Bitcoin bond.
Presently, however, El Salvador has not provided a timeline for when the set of bills will be forwarded to lawmakers.
El Salvador plans for Bitcoin Bonds
According to Bukele, the $1 billion acquired through bond issuance, will be used to fund Bitcoin City. The initiative, he notes, will provide “digital and technological education, geothermal energy for the entire city, and efficient and sustainable public transport.”
The bonds are commonly referred to as “Volcano Bonds,” since the Bitcoin City they are to build will harness geothermal energy from a volcano to power Bitcoin mining rigs. Mining operations commenced on Oct. 1, when the rigs generated the first 0.00599179 BTC. Part of Bukele’s 2022 predictions is that the city will commence construction this year.
To create the bonds, El Salvador partnered with crypto companies Blockstream and iFinex. The former has a Liquid Network where the bonds will be issued as the latter processes them.
Funds obtained from the Volcano bonds could also be used to pay down the country’s $800 million Eurobond issue which is due in Jan. 2023. The latter is a debt tool that facilitates a country’s fundraising in the currency of a different denomination from its own. Zelaya also said El Salvador could pay off the Eurobonds with “institutional offers from various investment banks” – a better alternative to obtaining another Eurobond.
We can simply make payments without creating another Eurobond in the traditional market, and we can find a bond that is denominated in dollars and receives payment in Bitcoin.
We Are Not Going to Abandon the Traditional Market
Of note, Zelaya affirmed that El Salvador’s issuance of Bitcoin bonds will not deter its participation in traditional finance, saying:
“We are not going to abandon the traditional market.”
He added that the Bitcoin bonds have generated significant interest in investors. This, he says, is because they offer exposure to BTC and have a decade’s worth of maturity at a 6.5 percent interest rate. Zelaya’s statement compliments another one of Bukele’s 2022 predictions that the “Volcano bonds will be oversubscribed.”
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