Colombia is about to launch a Central Bank Digital Currency (CBDC). The announcement was made during the banking convention held in the Colombian city of Cartagena. The General Director of the Central Bank of Colombia hinted at the possible launch of a CBDC. The latter could facilitate interoperability between local payment networks. Alas, according to Leonardo Villar, the director of the Central Bank of Colombia, the Colombian stablecoin could help the tax authorities to better collect taxes…
Colombia is inspired by its Brazilian neighbor
To curb the adoption of cryptocurrencies and take advantage of the strong digitalization of the economy, many governments around the world are considering launching CBDCs. The same is true for Colombia, which made this known through Leonardo Villar, director of the Central Bank of Colombia at the banking convention held in the city of Cartagena.
Leonardo Villar did not give more details on the project that is under consideration at the Central Bank. However, he did suggest that Colombia will draw on the experience of other countries that already have or are in the process of launching a CBDC.
Brazil was particularly mentioned. Brazil has launched a pilot project for its first central bank digital currency. This can be used as collateral by the country’s financial institutions to issue their own stablecoins.
Colombian authorities want more control over transactions
Although the head of the Central Bank did not go into detail about his plans to create a central bank digital currency, Leonardo Villar did say that one of the main objectives of the CBDC will be to make the different digital wallets available in the country interoperable.
Indeed, there are currently many digital wallets in Colombia held by different financial entities, but their lack of interoperability makes them inefficient and forces users to resort to cash, complicating the control of transactions as well as the collection of taxes by the government.
In an interview, another of the country’s top officials revealed another objective Colombia is pursuing. Luis Carlos Reyes, head of DIAN, the Colombian tax authority, said the launch of a CBDC is one of the proposals of newly inaugurated President Gustavo Petro. The latter wants to fight against tax evasion, estimated between 6% and 8% of the country’s GDP.
Colombia’s CBDC is mostly a political promise
Invested on August 7, 2022, the new left-wing president Gustavo Petro inherited a Colombian economy in the red. Inflation is at its highest, with a rate of 10.2% for the month of July alone. More than 11.7% of the population is unemployed and 39% of Colombians live below the poverty line.
Gustavo Petro is desperate to find resources to finance his social reform plan. Indeed, his major campaign promise is to reduce the gap between the rich and the poor. So the Colombian president is betting on increasing taxes for the richest and improving their collection. The launch of the CBDC seems to be one of his first steps in this direction.
In addition, despite the enthusiasm displayed by the Colombian authorities, it is important to remember that a CBDC suffers from the same ills as fiat money. In particular, inflation.
Worse still, the launch of a CBDC gives the central bank the power to issue and control all money, which risks restricting the role of commercial banks in favor of the public authorities.
Unfortunately, time has proven that the state always tends to abuse power. Moreover, while this observation led to the creation of bitcoin, which was supposed to separate the currency from the state, CBDCs are the opposite of this ideal. The state could use them to censor transactions and track people’s finances, in violation of privacy.
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