The Central Bank of Honduras (BCH) has issued a press release to clarify that the cryptocurrency Bitcoin will not be made legal tender in the country, after a flurry of recent reports had suggested such a move was imminent. Instead of pursuing the legalization of Bitcoin in Honduras, the BCH said it is working on its own digital currency.
The news will offer some relief to major financial institutions, which have largely expressed concern regarding El Salvador’s decision to become the first country in the world to make Bitcoin legal tender.
Rumors that nations including Paraguay, Venezuela, and the Caribbean island of Anguilla could make Bitcoin legal tender have swirled since El Salvador did so, and recent days have seen reports circulating that the crypto was about to be legalized in both Honduras and Malaysia.
While the suggestion regarding Malaysia appears to be well-founded, after a government minister publicly urged the Malaysian government to adopt Bitcoin, authorities in Honduras have moved to quash the rumors.
Many of the reports suggested that Honduran President Xiomara Castro was pushing to legalize Bitcoin in Honduras in order to escape dependence on the US dollar, and it was expected that an official announcement would be made on March 21 or 22.
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However, those rumors were finally put to bed by a press release from the Central Bank of Honduras published on March 23 [PDF].
“The BCH is the only issuer of banknotes and coins of legal tender in the national territory. Likewise, Article 1 of the Monetary Law states that the monetary unit of Honduras is the lempira,” states the press release.
The press release makes reference to BCH statements from previous years clarifying that the bank does not oversee or guarantee any kind of cryptocurrency or transaction made with one inside Honduras.
However, it closes by stating that the BCH is in the process of a “conceptual, technical, and legal study and analysis to determine the feasibility of issuing a central bank digital currency,” which would be recognized as legal tender and therefore regulated.
Legalizing Bitcoin in Honduras would create compliance concerns
The move by El Salvador to make Bitcoin legal tender has drawn criticism and caused widespread concern in the global financial community, which would undoubtedly have met any move to legalize the cryptocurrency in Honduras.
Concern regarding El Salvador’s move was not only based on the financial and regulatory risk associated with adopting cryptocurrency – which is notoriously hard to trace and volatile – but also the speed with which the country pushed its law through.
In El Salvador, it was less than three months between the country’s legislature passing a law to legalize Bitcoin and the law being implemented.
As such, the suggestion that Honduras might have sought to implement the legalization of Bitcoin on an even shorter timeline would have likely caused consternation. Not least because the business community in Honduras has itself previously expressed serious concerns about Bitcoin legalization in El Salvador.
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Much of that concern is based on the regulatory risks associated with a hard-to-trace and fluctuating currency.
Following the original passing of legislation to legalize Bitcoin in El Salvador in June 2021, Fitch Ratings reported serious concerns related to increased financial and regulatory risk associated with the adoption, “including the potential of violating international anti-money laundering (AML) and terrorist financing standards.”
In a mark of the volatility of Bitcoin, the Salvadoran government lost $3.1 million within a day of making its initial investment in the cryptocurrency, after prices slumped from $51,924 to $43,767 (all figures in USD).
At the time of publication, prices were even lower, sitting at $42,375 per Bitcoin, so that the 400 Bitcoin initially purchased by the Salvadoran government for $20.77 million are now worth just $16.95 million.
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