The central bank of the South American country Argentina published a statement on Thursday saying that the country’s financial sector cannot provide services related to digital assets that are not regulated. This effectively prohibits any crypto transaction within the official economy.
The move comes just days after Banco Galicia and Burbank SAU, the two largest private banks by market value in the Argentine state, announced that their customers can buy cryptocurrencies (Bitcoin, Ethereum, etc.).
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The country has decided to discourage the use of cryptocurrencies after the International Monetary Fund approved a $45 billion loan.
Banks in Argentina do not offer crypto services
As inflation rates hit 20-year highs, the country takes a strong stance against digital assets.
The purpose of banning cryptocurrencies is to mitigate risk and safeguard its economic system because the country considers that crypto assets are trustless and permissionless by nature. According to the BCRA statement:
The measure ordered by the Board of Directors of the BCRA seeks to mitigate the risks associated with operations with these assets that could be generated for users of financial services and the financial system as a whole.
IMF agreement to discourage cryptocurrencies
The move comes about a month after the International Monetary Fund said it would give the country a $45 billion loan.
The deal requires the country to discourage the use of cryptocurrencies to protect its financial sector. The Intention letter contains a summary of Argentina’s commitments to the agreement discussed with the IMF, stating:
To further safeguard financial stability, we are taking important steps to (i) discourage the use of cryptocurrencies with a view to preventing money laundering, informality and disintermediation”, to strengthen the country’s financial resilience.
The institution (BCRA) stated that Bitcoin and other cryptocurrencies could be used by criminals for money laundering and terrorist financing. Also, as they are considered untraceable, they (criminals or bad actors) can use them extensively in drug deals, weapons financing, prostitution, etc.
However, Chainalysis, a blockchain analytics firm, reports that money laundering accounted for just 0.05% of all crypto transaction volume in 2021. This would mean that $33 billion has been laundered since 2017. By comparison, the UN Office on Drugs and Crime estimates that every Every year $800 billion to $2 trillion is laundered using fiat currency, which represents about 5% of global GDP.
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The 2021 report from Chainalysis showed that Argentina ranked at number 10 with the highest cryptocurrency adoption rates in the world.
With this bold step of banning crypto services, the government of Argentina is trying to prevent its citizens from storing their money in crypto assets such as Bitcoin, Ethereum and stablecoins because they found digital assets to be a threat to their country’s economic system.
Featured image from Pixabay, chart from tradingview.com