Brazil’s Congress today passed a bill that would regulate the use of cryptocurrency as a means of payment throughout the country, potentially providing a boost toward the adoption of digital assets in the South American nation.
Brazil’s Chamber of Deputies approved a new regulatory framework—signed under code PL 4401/2021—that will include digital currencies and frequent traveler rewards from airlines (the popular “miles”) in the definition of “payment agreements” under the supervision of the country’s central bank.
The bill, which still requires the signature of the president, would give legal status to payments made in cryptocurrencies for goods and services—but would not grant them the status of legal tender.
What this means is that banks, if they chose, could soon begin offering crypto payment services, facilitating the use of crypto for buying and selling ordinary goods, in the same way that consumers currently use credit cards or other similar services.
Some banks in Brazil are already today experimenting with crypto custody, such as the Brazilian subsidiary of the Spanish banking giant Santander, which has plans to begin offering crypto trading services as well. Other banks like Itaú, one of Brazil’s largest private banks, plans to launch its own asset tokenization platform. None, however, have yet developed a service to process payments in crypto.
Brazil has made considerable progress in terms of cryptocurrency regulation and adoption among investors. It is currently the country with the most cryptocurrency ETFs in Latin America, and most of the country’s major banks and brokers currently offer some type of exposure to cryptocurrency investments or similar services like custody or token offerings.
If the bill is signed into law, it will be up to the executive branch of the government (the president and its ministers) to determine the body or office in charge of supervising the matter—only tokens categorized as securities fall under the jurisdictions of the CVM, Brazil’s equivalent to the SEC.
Until today, the public agencies most involved in the area have been the country’s own central bank and the CVM. In addition, the bill establishes rules for the operation of cryptocurrency exchange platforms, as well as the services of custody and administration of cryptocurrencies by trusted third parties. If passed, it will require that these companies establish a legal entity in Brazil in order to conduct businesses in the country.
One of the most important aspects of the regulation is the obligation for service providers to separate their funds from those of their clients as a way to prevent a situation similar to that of FTX. The Bahamas-based crypto exchange founded by Sam Bankman-Fried collapsed earlier this month after a bank run on the exchange, and the resulting liquidity crisis, revealed that the company did not hold one-to-one reserves of customer assets, and instead used them to fund its own financial operations.
