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Central Bank of Colombia Says Cryptocurrencies Must Be Regulated

  • The manager of the Banco de la República, Leonardo Villar, believes that cryptocurrencies are high-risk assets and should therefore be regulated.
  • It is estimated that the use of Bitcoin in Colombia represents around 2% of GDP.
  • One of the official’s fears is the use of digital assets by the country’s criminal organizations.

The manager of the Banco de la República (Central Bank of Colombia), Leonardo Villar, believes that despite the implicit risks in cryptocurrencies due to their high degree of volatility and lack of support, their acceptance and regulation represents an important step.

The senior official of the Colombian issuing institute presented part of his thoughts on the future of cryptocurrencies in the South American country during his participation in the Congress on Comprehensive Risk Management, organized by businessmen and insurance executives.

Villar said, “cryptocurrencies are mechanisms that have elements that could be interesting for the future, but which must first be regulated.” Although he did not say so explicitly, his words revealed that crypto assets will be part of the Colombian financial system sooner rather than later.

Growing Use of Cryptocurrencies Encourages Regulations

“Colombia appears with a relatively high use of cryptocurrencies, which could be linked to the fact that it is a good way to handle illegal activities. That forces us to have this type of activity highly regulated and to be very careful with the way it is carried out,” 

he said.

Villar’s words only confirm that the cryptocurrency regulation process in Colombia is advancing by leaps and bounds. Although the use of digital assets in the country is not regulated, it has not been declared illegal by the government either.

Colombia is among the Latin American countries where the use and adoption of digital money has increased the most in the last year, along with others such as Peru, Brazil, Argentina, Mexico, and Chile, according to the Statista Global Consumer Survey.

Transactions in Bitcoin alone last year reached 147 million dollars in Colombia. This places Colombia among the Latin America nations and the world where this cryptocurrency is most traded.

According to the former director of National Planning, Simón Gaviria Muñoz, quoting data from Citi Research, “Bitcoin currencies in Colombia reach almost 2% of GDP.” The analyst also considers that “the issuance of a cryptocurrency by Banco de la República is not only convenient, it is the future.”

On The Flipside

  • The issuing bank manager’s warning about the use of crypto assets is undoubtedly linked to money laundering by organized crime.
  • Colombia is the world’s leading producer and exporter of cocaine with an estimated production that reached 1,228 metric tons in 2020, according to figures from the UN Office on Drugs and Crime (UNODC).

For Leonardo Villar, the use and regulation of cryptocurrencies in the country “is a great challenge between the financial sector and the Banco de la República.”

The official pointed out that

"the process of digitizing financial operations is an accelerated process and it is necessary to seek a balance between the initiative and the technological capacity of the sector and the capacities including the Banco de la República to generate infrastructure that connects everyone."

Finally, the manager of the Banco de la República said that

"cryptocurrencies are mechanisms that generate very high risks, whose support is not fully known."

He stressed that

"many people get into cryptocurrencies for one or two reasons: because they simply want to speculate in a big way or because paradoxically it is an alternative to achieve transactions that do not leave traces, that can be terribly dangerous."

Why You Should Care?

There are two aspects that are motivating the regulation of cryptocurrencies in Colombia. One is the growing use among consumers for buying and selling transactions. The other is its use by drug cartels. Both concerns will only speed up the regulatory process through the discussion of bills that have already been submitted.

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