Paraguay’s Central Bank cautions against bitcoin and projects its CBDC

RIO DE JANEIRO, BRAZIL – Fear, uncertainty and doubt (FUD) are the emotions conveyed by the Paraguayan institution’s message, which is quite similar to others of its kind in other countries.

The statement points out that cryptocurrencies are not legal tender in the country and emphasizes their volatility, which makes them “high-risk” investments.

Likewise, the text from Paraguay’s highest monetary entity states that “cryptocurrencies, as they are not issued by a Central Bank, are not legal tender and have no cancellation force whatsoever.” The only valid currency in the country is the guarani, as detailed in the BCP’s Organic Law.

The BCP also referred to the volatility of some cryptocurrencies such as bitcoin. The Bank highlights the fact that the value of a cryptocurrency is based on the trust of the people who use it and on the law of supply and demand. This feature makes them “high-risk” investments, the text concludes.

Finally, the BCP also associates cryptocurrencies to an alleged use for “illegal operations.” This theory is based on the privacy and anonymity that some cryptocurrencies offer -not all-, features that can be used to finance terrorist activities, money laundering or drug trafficking without being easily detected.

However, the use of cash is still the preferred method for transactions linked to crimes. In fact, it provides for greater privacy than cryptocurrencies, whose information can be tracked through the blockchain at all times.

WILL PARAGUAY HAVE ITS CBDC?

The second part of the statement details the BCP’s analysis to implement its own digital currency in the future. These instruments are called CBDC, which stands for central bank digital currency.

According to the document, its potential use as a payment method “without the risks associated with private cryptocurrencies” is the main motivation for this to be implemented. It adds that “a digital currency issued by the BCP could provide complementary money to the public, thereby promoting the development of the national payment system.”

To that end, the institution created the Central Bank of Paraguay’s Working Group on Digital Currency which also monitors the progress of other central banks in this area.

OTHER CENTRAL BANKS ISSUING FUDs ON BITCOIN

Just like Paraguay, other central banks in Latin America have expressed their opposition to the popularization of cryptocurrencies. To convey this, they all resorted to the same method: a statement on the “risks” of bitcoin and similar cryptocurrencies.

For example, the Central Bank of Argentina has repeatedly alerted to the volatility, insecurity and other disadvantages of bitcoin use.

Similarly, the Central Bank of Chile in 2019 warned that cryptocurrencies cannot replace fiat money, while in Bolivia it was not the Central Bank but the Bolivian Financial System Authority (ASFI) in charge of “safeguarding” citizens from the alleged danger of cryptoassets.