Colombia dips its toes into cryptocurrency with pilot programme.

While China shies away from cryptocurrencies, it seems that the appetite for them is growing in Latin America.

Most recently, the Financial Superintendence of Colombia (“SFC”) has announced that it will launch, in March 2022, a pilot programme to formalise cryptocurrency transactions through three of the country’s largest banks: Bancolombia, Banco de Bogotá and Davivienda. The aim is to promote investments with cryptocurrencies in Colombia without the need for international intermediaries.

We spoke to the head of Colombia for a cryptocurrency exchange, “It’s good to have a pilot but it’s been slow, deadlines have been missed and only one or two alliances, of the nine that have been signed, are operational. Although the Colombian government has not regulated anything yet, and is far from doing so, they are taking the trial seriously.”

“It’s good to have a pilot but it’s been slow, deadlines have been missed and only one or two alliances of the nine that have been signed, are operational.”

Head of Colombia, international cryptocurrency exchange

Colombia aims to promote the technological awareness and digital transformation benefits of cryptocurrencies by centralising transactions through a state application which has some 90,000 users. Of this total, 30% have already engaged in transactions through the app. In addition, the country aims to become a regional pioneer in the acceptance of cryptocurrencies and the Financial Superintendence is working in collaboration with leading financial institutions in the country, who see the plan as an opportunity to attract new clients. 

At least, that’s what the press tells you. The reality is quite different according to a cryptocurrency exchange executive, “The traditional financial institutions don’t really have a role in the trial. The whole point of cryptocurrencies is that you don’t need intermediaries like the banks.” A cryptocurrency adviser to the SFC took another angle, “The banks want to create their own cryptocurrency, not adopt another one that is available on the international market because then they would have no value. The flip side of this is that international cryptocurrencies have more credibility and support, something the local ones are lacking.”

“The banks want to create their own cryptocurrency, not adopt another one that is available on the international market because then they would have no value.”

Cryptocurrency adviser to the Financial Superintendence of Colombia

Despite the aforementioned advances, Colombia is not contemplating the option of making cryptocurrencies legal tender. The current legal framework continues to be unclear and contradictory, as government agencies differ as to how cryptocurrencies should be taxed. The main bone of contention within regulators lies on the legal definition of digital assets and whether they are considered material goods, intangible assets or valueless items.

The international mood music is also changing. Despite El Salvador’s move into cryptocurrencies, China has banned them and the Federal Reserve is considering how to limit their use. According to the cryptocurrency adviser, “Cryptocurrencies will probably depreciate in the short term due to the regulatory issue, money laundering risk and the various bans on their usage. Despite this, in 5 to 10 years I expect various governments to have  their own cryptocurrencies circulating because the potential benefits for economic growth are huge.”

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