- El Salvador has prepared 20 bills to provide the legal and financial framework for issuing $ 1 billion Bitcoin bonds.
- The bond funds will be used to develop the proposed Bitcoin City and to pay the country’s $ 800 million Eurobonds.
El Salvador, led by President Nayib Bukele, is putting out its plans to issue Bitcoin (BTC) bonds in November 2021. The country has prepared 20 bills to provide a financial and legal framework for the bonds.
Speaking to Salvadoran El Mundo media, the head of the Treasury, Alejandra Zelaya, said the bills reflect regulations on issuing securities as cryptocurrency. This, he says, guarantees the viability of Bitcoin bonds:
[Esto es] giving legal structure and legal security to everyone who buys the Bitcoin bond.
At present, however, El Salvador has not provided a timeline for when the set of bills will be sent to legislators.
El Salvador’s plans for Bitcoin bonds
According to Bukele, the $ 1 billion raised through the bond issue will be used to fund Bitcoin City. The initiative, he says, will «provide digital and technology education, geothermal energy for the entire city and efficient and sustainable public transportation.»
The bonds are commonly referred to as ‘volcanic bonds’ because the Bitcoin City they are about to build will use geothermal energy from a volcano to power Bitcoin mining equipment. Mining operations began on October 1, when the first rigs generated 0.00599179 BTC. Part of Bukele’s prediction for 2022 is that the city will start building this year.
To create the bonds, El Salvador partnered with cryptocurrency companies Blockstream and iFinex. The first has a Liquid Network where the bonds are issued while the second is being processed.
Funds received from Volcano bonds could also be used to pay for the country’s 800 million dollar Eurobond issue which expires in January 2023. The latter is a debt instrument that facilitates the collection of money from a country in a different denomination currency. other than me. Zelaya also said that El Salvador could repay the Eurobonds with «institutional offers from various investment banks», a better alternative than getting another Eurobond.
We can make the payments without creating another Eurobond in the traditional market, and we can get a dollar denominated bond that gets paid in Bitcoin.
In particular, Zelaya stated that El Salvador’s issuance of Bitcoin bonds will not prevent its participation in traditional finance, saying:
We are not about to abandon the traditional market.
He said Bitcoin bonds have generated significant interest from investors. This, he says, is because they expose BTC and have a ten – year maturity at an interest rate of 6.5 percent. Zelaya’s statement complements another of Bukele’s predictions for 2022, according to which «Volcano bonds will be oversubscribed.»