Brazil expands cryptocurrency framework

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In an endeavour to bring greater transparency and certainty to the rapidly expanding field of cryptocurrencies, Brazil has issued a government decree formally entrusting the Brazilian Central Bank of responsibility for cryptocurrencies, with principles for virtual asset regulation.

The President of Brazil recently signed decree No. 11.563, which builds on a law established in December 2022, offering additional insights into the roles of the Central Bank of Brazil (BCB) and the Comissão de Valores Mobiliários (CVM) — Brazil’s equivalent of the U.S. Securities and Exchange Commission — pertaining to digital assets.

Under the ambit of the new decree, the Central Bank of Brazil has been authorised to regulate and oversee entities providing virtual asset services. At the same time, the decree ensures that token projects identified as securities remain under the purview of the CVM, reinforcing the dual structure of oversight designed to cover various aspects of the cryptocurrency ecosystem.

The CVM is concurrently focusing its efforts on crafting a regulatory framework that is tuned to the increasing volume of cryptocurrency trades and caters to the needs of emerging markets. The enactment of the new decree on 20 June 2023, as reported by Cointelegraph, is designed to bolster the existing infrastructure without impacting the present consumer protection laws and regulations concerning financial crimes.

In parallel to the regulatory developments, the Central Bank of Brazil is preparing to take the reins of a pilot project, exploring the potential of a central bank digital currency (CBDC). Working in conjunction with major payment firms like Visa and Mastercard, the bank is poised to examine the privacy and programmability features of its platform ahead of a potential digital real rollout.

The vibrant Brazilian crypto landscape, home to domestic crypto exchange Mercado Bitcoin, and several foreign payment providers like Crypto.com and Bitso, is also anticipating further growth. In a recent development in March 2023, Coinbase, a leading cryptocurrency exchange based in the United States, declared its alliance with local companies to facilitate Brazilian residents in making cryptocurrency purchases.

Further fuelling the innovative spirit, Mercado Bitcoin has been actively testing a tokenised version of the digital real, the Brazilian currency, under the banner of Brazil’s ‘digital real’ project. These tests have incorporated the Stellar blockchain as a public platform, carefully examining the steps a regular user might take to utilise a tokenised, on-chain version of the digital real. This includes essential components like Know Your Customer (KYC) and anti-fraud procedures, which have been obtained from a digital decentralised identity system, managed by Clearsale and CPQD.

These developments reflect Brazil’s efforts to balance the potential benefits of digital currencies with the need for effective regulation and consumer safeguards. As Brazil pioneers into this new financial frontier, the global audience looks on, curious to see how these steps could potentially influence worldwide cryptocurrency regulations and the future trajectory of digital currencies.

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