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Bolivia Lifts Cryptocurrency Ban to Fight Dollar Shortage
After the lifting of the cryptocurrency ban in Bolivia, which has been in effect since 2020, President Luis Arce finally revealed that the reason behind this decision was the shortage of dollars and fuel in the country.
Arce said his administration is trying to mitigate the lack of foreign currency that has hit the country due to the decline in gas exports, which is its main source of income until 2021. He sees cryptocurrencies as a solution to Bolivia’s macroeconomic challenges.
Bolivia’s Financial Modernization: Balancing Innovation and Caution
BeInCrypto reported that on June 26, the The Central Bank of Bolivia (BCB) has authorized the use of virtual assets through Electronic Payment Instruments (EPI). Edwin Rojas, the president of the BCB, explained that this new Regulation will enable electronic payment channels and tools for buying and selling virtual assets. However, Rojas stressed that the only legal tender in the country remains the Bolivian under Law 901 of 1986.
To know more: Cryptocurrency Regulation: What Are the Pros and Cons?
“A virtual asset is not legal tender, it is not cash and there is no obligation for the public to accept it as a means of payment. Therefore, the inherent risks of using and trading these assets will be borne by the users of these assets,” the official announcement of the BCB law.
To support this transition, the BCB has also launched a comprehensive training program on July 2 to educate various sectors on virtual resources. The first phase focuses on training journalists from major cities.
The effort ensures the accurate dissemination of public information about virtual resources. This includes their conceptual aspects, characteristics, regulatory aspects, safetyand risks.
This initiative is part of a broader effort by the BCB to improve the public’s understanding of new financial technologies. In addition, the central bank aims to support the country’s economic modernization.
Weighing the Pros and Cons of Cryptocurrency Adoption
The total value of Bolivia’s reserves, including gold and US dollars, has steadily declined over the past decade. According to the World Bank, this has brought them back to values close to 2006-2007.
Total value of reserves in Bolivia. Source: World Bank
From a macroeconomic perspective, cryptocurrency ban lifted could potentially attract foreign investment to Bolivia. This is because cryptocurrencies enable fast and secure transactions globally. Without traditional currency restrictions, this could encourage individual and corporate investors to diversify their assets in emerging markets, such as Bolivia.
Additionally, Bolivia, which receives significant remittances from its citizens abroad, could benefit significantly. Cryptocurrencies offer a faster and cheaper way to send money into the country, reducing transaction costs.
Cryptocurrency Adoption It can also boost e-commerce. In most cases, cryptocurrencies allow local companies to sell their products and services internationally without the barriers of the traditional banking system. This would diversify the country’s sources of revenue beyond gas exports.
In the context of inflation and devaluation of the local currencyCryptocurrencies could offer a more stable store of value. This could protect citizens’ savings and promote greater trust in the financial system.
However, it is crucial to note that the inadvertent liberalization of cryptocurrencies in the country could lead to significant systemic risks. Cryptocurrency volatility can destabilize the balance of payments, since sudden fluctuations in their value could affect international reserves and exchange rate stability.
Furthermore, the mass Cryptocurrency adoption would need a solid regulatory framework to prevent credit market disruptions. Such disruptions could reduce confidence in the traditional banking system and hinder banks’ lending capacity. This could worsen the economic crisis by limiting access to credit for businesses and consumers, hindering economic recovery and increasing financial uncertainty.
To know more: How to Protect Yourself from Inflation Using Cryptocurrencies
Ultimately, everything will depend on how regulators implement this new transition process and on the macroeconomic expectations of local actors.
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