Colombia Launches Digital Currency Initiative

The government of Colombia has released a statement confirming its plans for a digital currency. The initiative will be developed in partnership with the country’s central bank and will be based on blockchain technology. The move joins Colombia with the group of Latin American nations such as El Salvador and Venezuela, which have both formally adopted blockchain technologies to their respective economies.

According to the Colombian government’s tax authority, the initiative was made in order to curb tax evasion, which has been prevalent in the country, with estimates of between 6 to 8% of the country’s GDP accounting for the losses due to it. The country’s tax authority also claimed that such a system, set with the blockchain-based technology for open ledgers, would enhance the country’s system for tracking and tracing transactions made by its citizens.

While the intention is questionable with regards to privacy, the benefits of digitizing a country’s currency, as is the case with other central bank digital currencies (CBDCs), is with the economic security that it can possibly provide. CBDCs may act as intermediary assets to help a national economy recover from losses due to inflation and the global economic decline that we are currently in. The current proposal, however, stands with some caveats: it will also be implemented alongside tighter restrictions for fiat-based transactions that go above $2,400 (roughly 10 million Colombian pesos).

Earlier in February this year, the Colombian tax authority (Colombian Tax and Customs National Authority, or DIAN) began taking measures against crypto transactions, tightening its grip on taxpayers by tracking individuals who have been using crypto assets but failed to report such activities to them.

A similar pronouncement was made in April, with the Colombian tax authority issuing a warning that taxpayers who purposely evade taxes by using crypto will be held accountable under the law. At around the same time as these disclosures from the DIAN, Hernando Vargas, technical deputy governor at the central bank of Colombia, also revealed plans which considered the impact of a retail CBDC for the country.

Vargas says that cash will still be the preferred payment instrument in Colombia, specificially for low-cost transactions or point of sale purchases. However, Vargas also opines that crypto and stablecoins pose potential threats to the country’s economic stability.

“A line of defense against a widespread use of cryptocurrencies and stablecoins is weaker in Colombia than in other jurisdictions and the discussion about the adoption of a retail CBDC becomes particularly interesting,” Vargas shares.

On the same note, Luis Carlos Reyes, head of the DIAN, says that all “elements” that are considered as assets in the law should be declared, be it bonds, stocks, or crypto. This also means that crypto mining must also be properly accounted for, given how the tax authority classifies these operations as income-generating activities.

This latest move from the Colombian government is seen as one of the initiatives led by Gustavo Petro, the country’s newly-elected president who started his service on the first week of August. President Petro has been known as a support of Bitcoin, sharing his belief in decentralization and how blockchain technology could diffuse power from the government and give it back to the people.

“Virtual currency is pure information, and therefore energy,” shares the head of state.

It’s not a surprise, then, that this latest digital currency initiative is tied with the Colombian government’s recent pronouncements. If you can’t beat it, perhaps coopt it? Only time will tell if this digital currency initiative will be a success. But for now, it’s an interesting development to keep an eye on, especially given Colombia’s recent crypto crackdowns. To date, the digital currency initiative is still in its proposal stage, with no further details disclosed on exactly how it will be implemented, or how it’s supposed to work alongside the country’s fiat currency.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.