Latin American Nations Embrace, Reject Crypto

16 August 2021

Inflation and financial instability are motivating pandemic-ravaged countries throughout Central and South America to seek fuel for their sputtering economic engines. Throughout the region, governments are experimenting and making commitments to progressive crypto policies.

Here’s an update on the major moves.

El Salvador

A tiny central American country became the biggest story in the crypto world on 9 June 2021 when it adopted Bitcoin as legal tender. By a 62-22 margin, El Salvador’s congress voted “to regulate Bitcoin as unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private natural or legal persons require carrying out.”

The law requires the government of El Salvador to promote training and Bitcoin access to the country’s population.

That’s important in a country in which 70% of the population does not have access to traditional banking services.

The law allows merchants to set their prices in Bitcoins. Individuals can pay their taxes with Bitcoins. And exchanges will not be subject to capital gains tax in El Salvador.

El Salvador has used the U.S. dollar as its official currency since 2001. Nearly a quarter of the country’s gross domestic product – more than €5 billion – consists of remittances: money transfers from outside the country. In El Salvador’s case, 95 percent of the remittance economy consists of transfers to El Salvador residents from family members residing in the United States.

Cryptocurrency makes remittances much faster while eliminating costly bank fees on international wire transfers.

Many residents of El Salvador had already transitioned to the digital economy before the government officially designated Bitcoins legal tender. The trend has accelerated since legislators made the policy official.

Paraguay

In July 2021, legislators in Paraguay addressed the crypto issue. While Salvador embraced the digital economy as a solution to its economic woes, Paraguay seems to view cryptocurrency as a potential threat that must be regulated to prevent disruption of the local economy. El Salvador legitimized the Bitcoin as currency, and Paraguay marginalized the currency as property.

The legislation requires cryptocurrency miners to obtain licenses from the government. It states that transfers to and from other countries should be subject to taxation. And it gives the national bank of Paraguay broad control over crypto-based businesses. 

Under the proposed legislation, even people who buy and sell crypto as an investment must obtain government licenses. Individuals caught buying and selling cryptocurrencies are subject to fines, while companies engaged in unauthorized crypto business could face closure, the cancellation of trade registration, financial penalties, dissolution, and forced liquidation of business assets.

Venezuela

Venezuela’s central bank announced on 6 August 2021 that it intends to launch a central bank digital currency in October.

Venezuela’s population has suffered through years of skyrocketing inflation. In 2020 alone, the country endured an annual inflation rate of 2,300 percent. The government’s digital currency will strip six zeros from the price of fiat Bolivars. Venezuela says it will allow citizens to buy and sell the new currency via SMS.

The country’s existing legal currency, the Bolivar, will still be legal tender.

Venezuela issued a national cryptocurrency, the Petro, in February 2018. The government said the currency was secured by oil and mineral reserves. Although the Petro is accepted for paying taxes, fees, real estate, gasoline, airfare, and other obligations, the coin cannot be purchased with bolivars. The government sells Petros for Bitcoins, Ether, NEM coins, and Russian rubles.

Brazil

Researchers say that nearly five percent of Brazil’s population – more than 10 million people – own cryptocurrency. Surveys say that 92% of Brazilian crypto users are male and that 40 percent are 20 to 25 years old.

In April 2021, Banco do Brasil became the first state-backed bank in Brazil to allow brokers to offer crypto-based funds to investment firms. According to the Brazilian Securities and Exchange Commission, two funds will be available initially. 

The state bank won’t buy or sell cryptocurrency directly, but will allow investors to purchase shares of funds that mirror the price of Bitcoin or a portfolio of leading cryptos, including Bitcoin, Ether, Litecoin, Chainlink, Bitcoin Cash, and Stellar.

Chile

Taxpayers in Chile who visit the country’s official tax-agency website are being greeted with a pop-up window devoted to cryptocurrencies.

The pop-up reminds taxpayers that crypto transactions must be included in income tax filings.

The Chilean IRS has made a point of taxing capital gains and losses from cryptocurrency trading since 2019.

Government tax authorities know which taxpayers should see the website notice because businesses that process the purchase and sales of digital assets for Chilean citizens must disclose transactions and customer lists to government authorities.

Mexico

Cryptocurrency is widely used in Mexico, but authorities see nothing but trouble ahead.

In June 2021, a trio of Mexican financial authorities issued a unanimous warning to citizens. The statement included a reminder that cryptocurrencies are not legal tender in Mexico and that financial institutions operating with them would be subject to legal action.

The statement was issued by a representative of the Bank of Mexico, the country’s ministry of finance, and its chief banking regulator. “The financial authorities reiterate their warnings on the risks inherent in the use of so-called ‘virtual assets’ as a means of exchange, as a store of value, or as another form of investment,” the statement said.

Uruguay

In Uruguay, pending legislation would allow local businesses to accept cryptocurrency payments while regulating the use of digital assets. The bill mentions Bitcoin but emphasizes that it is just one example of cryptocurrencies that the government might approve and regulate.

According to a draft of the bill, the legislation is intended to promote and protect investors by establishing “clear rules, legal, financial and tax certainty in business derived from production and marketing of virtual assets, also known as crypto-assets, cryptocurrencies, and tokens from blockchain technology.”

Among other provisions, the bill specifies procedures and circumstances for taxing cryptocurrency miners.