|Carlos Fradique-Méndez||Sebastián Boada Morales|
Virtual currencies have become increasingly important in recent years. Having analysed both the potential benefits and pitfalls, regulators must now decide how they will deal with the issue. A recent study from the International Monetary Fund describes virtual currencies as "difficult to regulate and opaque". It further states that they operate outside of the conventional financial system.
The Bank of England recently issued a working paper introducing the possibility of a digital currency backed by the state. On July 12 2016, Colombia's Central Bank (Banco de la República de Colombia or BRC) issued Opinion JDS 14696. This was the first time the BRC had addressed the subject of virtual currencies. The regulatory decision taken by the BRC is total prohibition. This stands in contrast to the more flexible and innovative approach seen in other jurisdictions.
The BRC established that the only currency that may be used as a medium of exchange, with sufficient power to extinguish existing obligations, is the Colombian peso, the fiat currency issued by the BRC and backed by the Colombian state. Virtual currencies such as bitcoin are not recognised as a valid monetary unit. Therefore, no Colombian resident is obliged to accept or give these as a means of payment.
The BRC established that virtual currencies entail intrinsic risks due to their nature. According to this, virtual currencies aren't backed by a state and are part of a decentralised trading system which is not subject to state surveillance or control. Additionally, they have no intrinsic value. Rather, their value is determined by the market. These characteristics pose risks to both the financial system and to consumers. In recent years, the Colombian Superintendence of Finance has issued statements along similar lines.
Colombian residents may purchase virtual currencies issued abroad. However, this may only be done as a way of financial investment, and subject to the specific agreement and risks that the Colombian resident is willing to assume.
The BRC's regulatory approach is prohibitive. It effectively bars the use of virtual currencies in Colombia and reiterates that the only currency recognised by the state is the Colombian peso. This regulatory approach provides certainty at the cost of innovation.
Carlos Fradique-Méndez and Sebastián Boada Morales