Monday, March 4

Uruguay begins to regulate bitcoin and the Central Bank defines “what is what”

Key facts:
  • When used for payments or exchanges, bitcoin and ether would be out of regulation.

  • The BCU mainly targets assets used for investment and capital raising.

The highest monetary entity of the Eastern Republic of Uruguay issued a statement in which it provides definitions and establishes basic notions for the regulation of bitcoin and other crypto assets. In general, there is no strict legislation for its use as a payment or exchange method, but as an investment asset.

The document, whose title is Conceptual framework for the regulatory treatment of Virtual Assets in Uruguay, is intended to share the results of the investigation of the internal Working Group on Virtual Assets. It is a team made up of the entity especially to analyze the regulation of these assets.

According to published by the Uruguayan newspaper El País, it is expected that the next step for the BCU is to work on a bill to legislate on this issue. In October, CriptoNoticias had reported that the Central Bank was analyzing the regulation of crypto assets and that it was developing a conceptual framework that, finally, was released in the last days of the year.

Diego Labat, the president of the body that regulates the monetary system in Uruguay, expressed that the document “intends to say what the bank wants and does not want to do” with cryptocurrencies.

What are virtual assets for the Central Bank of Uruguay

Faced with a type of assets that is novel and that differs from those of the traditional financial system, one of the first needs of a document of this type is to establish what is being talked about when mentioning each element or actor of the ecosystem.

In social networks, the BCU disclosed its new documentation on cryptocurrencies and its future regulation. Source: Twitter @Bancocentral_uy.

Thus, for the term “virtual asset” it is explained that it is a “digital representation of value or contractual rights that can be stored, transferred and electronically traded using distributed ledger technologies (DLT) or similar technologies”.

Cryptocurrencies like bitcoin (BTC) and ether (ETH) would fall into the category of virtual exchange assets. These, the BCU explains, “are used as a medium of exchange or for investment.”

In addition, three other types of virtual assets are distinguished: virtual assets, values, which “can grant rights such as property, the reimbursement of a specific sum of money or the right to a participation in future economic benefits”; useful virtual assets, which allow access to a product or service (an example would be fan tokens); and stable virtual assets, which reduce volatility and can be backed by reserve assets.

The Central Bank of Uruguay detailed the roles of each actor in the bitcoin ecosystem according to their vision. Source: Central Bank of Uruguay. Fountain: BCU.

Finally, the definitions section of the document also provides details on what is considered a developer, miner, escrow service provider, and user. It also explains what an exchange is and what brokers or advisers, issuers of virtual assets, and service providers of virtual assets do.

Regulatory framework for bitcoin in Uruguay

Based on the above definitions, the BCU delimits which activities of the cryptocurrency ecosystem are plausible to be regulated under its orbit. This applies, for example, to virtual asset service providers related to “investing and raising capital”.

For their part, Virtual assets of utility and those of exchange are considered as interchangeable or usable for payment in kind, and that is why they would be excluded from the regulatory framework, except in the case of indirect investments, such as futures in the stock market.

Finally, the BCU conceptual framework establishes that stable virtual assets present “the greatest opportunities in terms of improvements in the efficiency of payment systems” and, given their increasing adoption, have “the greatest potential to acquire systemic importance.” This is because, according to the text, they reduce costs and improve interoperability. In addition, through its regulation, the associated risks can be reduced.