Chile may be the next Latin American country to embrace Bitcoin and other cryptocurrencies in one form or another.
Lawmakers in the country are currently working towards legislation that would legalize the use of Bitcoin as a means of payment, and the Chilean government is already warming up to the idea of developing its own central bank digital currency. Will it be enough to change the country's financial landscape?
In early November, Congressman Karim Bianchi introduced a proposal that seeks to recognize and regulate the use of Bitcoin and other cryptocurrencies as legal means of payment in the country. If passed, the law could provide the legal basis for further regulatory developments, such as banks offering crypto custody services.
Last week, the Congress passed Bianchi's initiative for discussion under the Commission of Economy and Development. The legislation is quite concise. With just four articles, it is essentially aimed at regulating Bitcoin as a means of payment that is "valid in any transaction and in any capacity that private natural or legal persons require to carry out."
In addition to recognizing Bitcoin as a valid means of payment, the proposed law states that the exchange rate for a Bitcoin will be determined by free-market mechanisms and that prices may be expressed in Bitcoin in the country, though it will be mandatory to represent them in Chilean pesos as well.
🚨LEY BITCOIN 💰. El diputado Karim Bianchi presentó proyecto de ley que regula transacciones con esta modalidad en Chile. Señala que todo precio podrá ser expresado en Bitcoin @DFinanciero pic.twitter.com/IuCYUQGmJu
— Rodolfo Carrasco (@RodoCarrascoM) November 24, 2021
Cristobal Pereira, founder of Blockchain Summit Latam and Blockchain Academy Chile, believes the proposal seeks to further the debate on Bitcoin at a macro level. "If this were a truly, fully developed bill, the goal would be the use of Bitcoin for individuals and businesses as a means of payment," he told Decrypt.
While it may yet be a small step forward, that Chile is considering such regulatory action is significant, given the current climate and its relatively conservative economic institutions. The government of neighboring Bolivia has outlawed the use of Bitcoin in the country altogether.
Chile doesn’t “need” Bitcoin
The country's political and financial conditions, however, are very different from other countries in the region that have turned to cryptocurrencies in the face of weak economies. Venezuela is under strict sanctions imposed by the United States, and the country currently has the highest inflation rate in the world. Argentina is the second-worst economy in the region, and El Salvador, which recognizes both the U.S. dollar and Bitcoin as legal tender, has no fiat currency of its own and is now in the crosshairs of large global financial organizations after adopting Bitcoin.
On the contrary, Cristóbal Pereira stresses that "Chile is a fairly stable economy, with recognized financial institutions and inflation within normal parameters," so "there would not be much of a need for Bitcoin as a financial haven rather than a mere speculative asset."
Pereira ruled out the possibility of Bitcoin being declared legal tender in Chile and argued that Chile would most likely follow a model like that of Japan, where Bitcoin payments are legally accepted, but there is no foreseeable intention to adopt it as legal tender.
Meanwhile, Chile’s government is also considering issuing its own central bank digital currency (CBDC), which essentially be a digital version of the Chilean peso. In late September, Chile's Central Bank created a team to work on its digital currency starting in 2022 as a way to innovate and energize its economy.
Unlike a traditional cryptocurrency, a CBDC is the digital equivalent of conventional fiat money. With CBDCs, the digital money is issued and controlled by the central bank, and users generally sacrifice privacy in exchange for convenience, since it is often a more efficient means of payment.
"A CBDC is already underway," Pereira said. It’s likely that the country’s CBDC initiative will have more political support in the country than the proposal to regulate Bitcoin. “Clearly, the more conservative politicians are going to say that you don't need to express prices in Bitcoin if you are already going to develop a CBDC,” said Pereira.