The central bank of Brazil is becoming increasingly concerned about the potential for cryptocurrencies to divert attention from the real world. In an effort to encourage individuals to return to the national currency, the institution intends to prohibit self-custodial stablecoins.
Brazil is increasing its efforts to strengthen its financial system and protect the Brazilian real from the increasing public distrust. Banco Central do Brasil (BCB) has officially proposed a moratorium on self-custodial stablecoins in an effort to target crypto users, which has sparked a backlash from the community. The objective of the initiative, which is anticipated to be transformed into regulations next year, is to prevent individuals from storing cryptocurrencies such as USDT or USDC in user-controlled wallets that are independent, such as Metamask, Phantom, or Trezor.
The proposition has been under contemplation since at least October, when Roberto Campos Neto, the president of Brazil’s central bank, publicly stated that stablecoins and asset tokenisation should be regulated in the country next year. Nevertheless, it is probable that the plan has been in the works for a significantly lengthier period.
Neto contended that stablecoins facilitate illicit activities and contribute to tax evasion as early as 2023. The annual cryptocurrency imports in 2023 totalled $7.4 billion, a 44.2% increase from January to August in comparison to the same period in the previous year, according to data from the BCB.
It is notable that the local demand has recently shifted to stablecoins, which are associated with the US dollar or other real-world assets. This trend implies that Brazilian citizens are more inclined to utilise cryptocurrencies as a payment method than as a means of investment.
It is hardly surprising. Inflation in Brazil has been on the rise for several years, which has resulted in a downward pressure on the real. Political instability has further exacerbated this situation.
In order to regulate inflation, the Bank of Canada has needed to increase interest rates on numerous occasions. It was only natural for Brazilian citizens to turn to stablecoins in order to safeguard their assets from devaluation.
Currently, the BCB’s strategy for implementing its concepts remains unclear. The proposal stipulates that cross-border crypto transactions will be conducted exclusively by authorised virtual asset service providers (VASPs).
The use of stablecoins pegged to foreign national currencies for domestic payments would be severely restricted, and the transfer of these assets to self-custodial wallets would be prohibited entirely.
Furthermore, BCB is contemplating the prohibition of all cryptocurrency transfers to foreign user-controlled crypto wallets, including stablecoins. Foreign asset transfers to regulated institutions would be mandatory for Brazilian VASPs.
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