This Week's Insights from Latin America: A Region in Regulatory Flux

This week's Insights from Latin America (LATAM) reveals a region in regulatory flux.

This Week in Latin America: Argentina’s Congress to Probe Libra Token Link, Brazil’s Top Court Approves Crypto Seizure for Debt

Good morning, dear readers, and welcome to another installment of our regularly scheduled programming, This Week in Latin America.

This week, we’ll be taking a closer look at the latest developments in the realm of cryptocurrency regulation across Latin America. From Argentina’s Congress launching an inquiry into the failed Libra token to Brazil’s National High Court, also known as STJ, paving the way for cryptocurrency assets to be seized for outstanding debts, there’s plenty of news to unpack.

Additionally, we’ll be examining the setback faced by Brazil’s Drex CBDC pilot as it faces delays due to unresolved privacy concerns, and how tech partners Microsoft and EY are scaling back their support for the initiative.

Let’s delve into the details of these noteworthy events.

Argentina’s Congress to Probe Officials’ Ties to Failed Libra Token

In a significant political move, the lower chamber of Argentina’s Congress has voted to create a commission that will investigate government officials’ alleged involvement in the launch and collapse of the Libra token, also known as La Libertad Avanza.

The initiative was approved with 128 votes in favor, mainly from the left-leaning benches, while 93 voted against and seven abstained. The commission, which will be composed of 24 deputies, will begin its work on April 23 and has a 90-day mandate to carry out the investigation.

The aim of the commission is to determine whether President Javier Milei, his sister Karina Milei, and other high-ranking officials from the ruling party had a role in the token’s launch and subsequent failure.

This move is a “hard setback” for the ruling party and may have major implications for Argentina’s crypto regulatory future.

Latin America’s Highest Court Approves Crypto Attachment for Debt

In a landmark legal decision, the National High Court of Brazil (STJ) has ruled that cryptocurrency assets can be legally attached to cover outstanding debts.

The judgment, delivered by STJ’s Fourth Panel, highlights that although cryptocurrencies are not legal tender in Brazil, they are taxable assets and recognized by the Central Bank as valid means of payment and stores of value.

Moreover, the court noted that the rendering of crypto transactions is already required to be declared to Brazil’s Federal Revenue Service. In this regard, STJ President spoke about the need to adapt the legal framework to account for the rapid evolution of technology and its impact on society.

The court’s ruling was based on the existing legislation requiring the reporting of crypto transactions to the revenue service, comparing cryptocurrency to other seizable financial instruments.

This decision sets a major precedent, empowering creditors and legal authorities to access digital assets for debt recovery, especially from individuals who may be trying to evade the financial system by using cryptocurrencies.

Brazil’s Drex CBDC Pilot Hits Snag as Tech Partners Scale Back Support

The Brazilian Central Bank’s digital currency pilot, Drex, has hit a major setback as it faces developmental delays.

Tech partners Microsoft and EY are scaling back their support for the initiative as they couldn’t present viable solutions for the Drex pilot’s second phase, which closed recently.

According to Valor Economico, none of the proposed privacy framework solutions met the required standards for transaction confidentiality and compliance oversight set by the central bank.

The report adds that the central bank is keen on a dual approach, ensuring both user privacy and the ability to trace transactions for regulatory purposes, which has proven to be a challenge.

As a result, the progress on the Drex pilot has stalled, and the third phase, which was due to start in March, has been postponed.

Earlier this year, Microsoft and EY were selected by the central bank to develop technical solutions for the Drex pilot. The pilot’s second phase focused on testing new technologies and use cases for the real-world application of the digital currency.

However, despite months of work and collaboration, the tech partners were unable to present solutions that met the central bank’s stringent criteria.

The central bank is keen on maintaining a balance between privacy and surveillance in the Drex pilot. While the bank wants to protect users’ personal data, it is also interested in being able to monitor transactions for compliance purposes.

This dual mandate has proven to be difficult to achieve in the context of a decentralized and permissionless technology like blockchain, which is used to underpin cryptocurrencies and Web3 applications.

The report adds that the central bank is now planning to use the solutions developed by Microsoft and EY to create a prototype of the Drex token.

Once the prototype is ready, the central bank will launch a broader pilot program with the participation of several commercial banks. The goal of this pilot is to test the Drex token in a more realistic setting and to collect feedback from a wider range of users.

The report concludes