Bloomberg Línea — There are many central banks in the world that look askance at the expansion of cryptocurrencies, and although that stance does not respond to a specific ideological pattern or to a specific geographic location, staunch opponents of Bitcoin (XBT) can be found from the Central Bank of Argentina (BCRA) to the Bank of England.
Christine Lagarde, head of the European Central Bank (ECB), recently expressed her rejection of crypto assets. During an interview with broadcasters in the Netherlands, Lagarde said: “my humble opinion is that cryptocurrencies are worthless, they are not based on anything, and there is no underlying asset that acts as a security anchor” in operations carried out with cryptocurrencies.
The ECB president also said that such transactions should be regulated because many people do not understand the risks involved, and “will lose everything and will be disappointed” in the end.
Crypto in Latin America
However, very enthusiastic attitudes toward the crypto ecosystem can be observed in Latin America, such as that of the government of El Salvador, which made Bitcoin legal tender. On the other hand, there are more resistant positions, such as that of some central banks that do not reject the crypto currency directly, but do issue sporadic warnings about the use of this type of assets.
One of the Latin American countries with the strongest official stance against crypto is Argentina. The Central Bank has issued communiqués warning investors about the volatility of crypto assets, and the bank’s head, Miguel Angel Pesce, has openly criticized them on several occasions.
The bank stated in a tweet on May 4 that “it considers it opportune to recall the risks that crypto assets can imply, recommending a prudent attitude to mitigate a source of vulnerability for users and investors”.
On May 4, Banco Galicia, one of the Argentina’s largest private banks, informed its customers that they could buy cryptocurrencies from its platforms. But one day later, the Central Bank issued a statement indicating that banks would not be allowed to facilitate such transactions.
Argentina is currently the fifth country in Latin America with the highest cryptocurrency adoption, according to a report by blockchain consulting firm Chainalysis, and 28th in the world. Many investors in the country see crypto assets as an opportunity to seek an alternative to the peso, given that the Argentine currency has had one of the worst performances among currencies of the region over the last decade.
The crypto ecosystem has not found a friendly framework in Bolivia either, at least from the monetary authority’s point of view. On December 15, 2020, the Central Bank of Bolivia had resolved to “ban crypto assets”, by means of a board resolution. At the time of that determination, Bitcoin’s value was in a vertical climb, having entered December of that year below $20,000 and ended it above $32,000.
On May 17, 2021, the Central Bank of Bolivia (BCB) issued a statement recalling that resolution and adding an extra recommendation: “avoid the use” of cryptocurrencies and their “negotiation”, since “these are issued anonymously” and in cases of fraud, scams or losses to their holders, “there are no guarantees to protect the investment”.
On May 4 of this year the bank posted a tweet warning that cryptocurrencies are “illegal” and their transaction is not permitted.
Once again, the timing of the Bolivian monetary authority was linked to a moment of specific volatility of the most popular crypto asset, although it was a bearish moment: after having surpassed $58,000 on May 7, the currency plummeted by 21% a week later.
The Central Bank of Costa Rica, during the administration of former governor Rodrigo Cubero (who left office on May 8) expressed an intermediate position, encouraging the growth of the fintech industry, with a certain anchor in the crypto world, but warning about the risks of crypto assets.
The bank issued a statement in 2017 stating that the use of crypto is legal in the country, but warned that those who use it do so “at their own risk”.
“Cryptocurrencies do not really represent money in the strict sense, as they do not fulfill well any of the three essential functions of money: serving as a generally accepted means of payment, as a unit of account, and as a store of value,” the Costa Rican monetary authority had warned.
The central bank also focused on crypto assets’ “disproportionate volatility” and criticized “the energy consumption” required by the mining process, “with its consequent environmental impact”. It also pointed out that the anonymity and lack of traceability have turned them “into a refuge for illicit activities, such as common or organized crime, money laundering and financing of terrorism”.
The issue was revived in the country in 2021 when El Salvador declared Bitcoin legal tender.
At that time, Cubero stated that “sooner or later” this type of assets will be regulated, and affirmed, weeks later, that the Costa Rican central bank maintained a position of “vigilant tolerance” on the issue of cryptocurrencies.
Although Cubero is no longer in charge at the bank, in April he assured that his successor, Roger Madrigal, would be a “seal of continuity” in this matter.
Guatemala’s banking regulator Superintendencia de Bancos (SIB) warned in February 2021 that cryptocurrencies are not legal tender in the country, in accordance with the provisions of the Monetary Law, which determines that for Guatemala only the quetzal is legal tender.
The SIB added that virtual currencies are not backed by the state of Guatemala, and that “they are not considered foreign currency, are not guaranteed, nor can they be forced to be accepted as a means of payment in transactions of goods and services”.
In that note, the Bank of Guatemala stated that it is the only entity that may issue banknotes and coins in the country.
“Virtual currencies are not backed by the state of Guatemala, because they may not comply with protection standards or risk mitigation processes”, according to Sergio Recinos, president of Guatemala’s central bank (Banguat).
However, a crypto enclave has emerged in the Central American country, ‘Bitcoin Lake’ (Lago Bitcoin), a project that seeks to replicate the experience of El Zonte beach in neighboring El Salvador, a tourist destination that became a pioneer in accepting the cryptocurrency long before the country’s President Nayib Bukele created his Bitcoin Law.
“Bitcoin offers an economic freedom that is not found in current fiat currencies or other cryptocurrencies. Having access to a bank account in a place like the United States and also in Guatemala is the first step to generate personal and generational wealth,” the founder of Bitcoin Lake, Patrick Melder, told Bloomberg Línea in an interview earlier this year.
“Between 60-65% of people in Guatemala do not have access to a bank account, creating endemic poverty. Bitcoin is the ultimate private property that cannot be confiscated. If you can remember twelve words in your head, then you can take your bitcoin anywhere in the world and pass it on from generation to generation.,” he said.
The Bank of Mexico (Banxico) is developing a digital currency that will take three years for its definitive operation in the country, as part of the long-term payment strategy, as anticipated on April 21 by the central bank’s governor Victoria Rodríguez Ceja.
Nevertheless, Rodríguez Ceja has warned that crypto assets “are unsupported assets, they are not legal tender, and due to their variability they can be a risk for individuals who decide to have access to them”, and she made a distinction between the planned Mexican digital currency and crypto assets.
Bitcoin has several supporters in Mexico’s Congress, and who promote its regulation. In fact, days after Rodriguez Ceja’s speech, Movimiento Ciudadano party senator Indira Kempis, together with the director of Blockchain Land, José Rodríguez, installed a bitcoin ATM inside the Senate, for educational purposes, alongside existing BBVA, Banorte and Banco Afirme ATMs.
On April 26, Kempis tweeted a picture of the ATM, with the statement: “For financial freedom, inclusion and education in Mexico”.
“Bitcoin and other cryptocurrencies are not considered to be banknotes or coins, do not have mandatory force in Paraguay and, therefore, do not enjoy the guarantee of the state,” the Central Bank of Paraguay (BCP) said in a statement on September 21, 2021.
At that time, Bitcoin was close to breaking the $11,000 threshold, and the cryptocurrency was about to begin a monumental climb that took its price to above $30,000 at the end of the year.
The country’s central bank tweeted a link to a communiqué on September 19, 2020, reminding users of its warnings about crypto.
Peru’s Central Reserve Bank (BCR) released a statement entitled “The Risks of Cryptocurrencies”, which details how “several international authorities have been expressing their concern about the risks and speculative factors that explain the high volatility of cryptocurrency prices, which affects those who acquire them”.
The bank added that people who invest in virtual currencies or cryptocurrencies should be “aware of the risks” such as “the loss of the value of their investment due to the high volatility in their price, and the possibilities of fraud”, as well as “their possible use in illicit activities”.
In March of this year, BCR’s governor, Julio Velarde, warned: “What happens with crypto assets is that volatility can go in any direction, up or down”.
He also considered that “they have no intrinsic value” and that “they are not a means of payment”.
The Peruvian central banker’s statements were made against the backdrop of a volatile and bearish year for the main cryptocurrencies. According to Chainalysis, Peru is the fourth country in Latin America in terms of the level of crypto adoption, and number 22 in the global ranking.
As in other countries in the region, the Dominican Republic’s Central Bank has also issued an official statement about the risks to which those who invest in cryptos are supposedly exposed.
“They are not legal tender and, therefore do not enjoy the backing of the state, their effectiveness or their use as a means of payment in our economy cannot be guaranteed, nor is any person under any obligation to accept them as a form of payment for goods or services rendered,” the bank warned in a document published on September 21 of last year, in a framework of extreme volatility for the crypto market.
At that time, Bitcoin had jumped from $30,000 to $52,000 in less than two months, and within a week had fallen back to $40,000.
Furthermore, the central bank’s governor, and who has held the post since 2004, Héctor Valdez Albizu, stated in February of this year that crypto assets represent risky virtual assets “that do not enjoy the backing of any central bank” and “could not be considered to be money”.
“Although their popularity has increased in recent years, their use as a means of payment is very limited, operating rather as a high-risk asset in which a particular group of investors has placed resources in recent years,” Valdez Albizu csaid.
Beyond the region
Beyond Lagarde’s aforementioned criticism, many other of the world’s leading central bankers have also criticized cryptocurrencies.
Federal Reserve Chairman Jerome Powell acknowledged in September 2021 that he has no plans to ban this type of asset, although on various occasions he has pointed out that Bitcoin is not “a useful store of value” due to its high volatility, and that crypto assets are mere “speculative assets” with no backing whatsoever.
The Fed’s decisions usually have a very decisive indirect impact on the valuations of cryptocurrencies, since each rate hike or monetary tightening signal hits the prices of risk assets, at least in the short term.
In line with some of his peers, the governor of the Bank of England, Jon Cunliffe, often issues warnings about the risks of cryptocurrencies, and has even stated that their price could drop to zero.
Another developed country where the monetary authority does not like Bitcoin is Japan.
Bank of Japan governor Haruhiko Kuroda joined the chorus of central bankers speaking out on bitcoin following its rise and fall. “Most of the trading is speculative and the volatility is extraordinarily high,” he said in an interview with Bloomberg in mid-2021 to Bloomberg.
“It’s hardly used as a means of settlement,” Kuroda later added.
But the country that has gone a step further is China. The country’s central bank stated in September last year that all cryptocurrency transactions are illegal, and which generated a short-term sting in the crypto world, given that it is a key country in blockchain mining.