Late last year the Banco Central do Brasil launched a consultation relating to cryptocurrency, cross border payments and foreign exchange (FX). It proposed only to allow authorized virtual asset service providers (VASPs) to execute cross border payments and block self hosted wallet transactions. At an event last week, the central bank’s Eduardo Nogueira Liberato de Sousa indicated that these plans will likely be relaxed, according to Valor Econômico.
“As we realize that service providers can monitor the quality of self custody clients, we see room for flexibility. The important thing is to hold the institution accountable for getting to know the client who uses self custody,” he said. This is similar to the approach taken in Europe.
Beyond custody, currently Brazilian law prohibits the use of foreign currencies for domestic payments and the intention was to explicitly apply that to stablecoins. “We are evaluating whether this prohibition makes sense. Especially in cases where the transaction takes place between self custody wallets of residents and the price is set in reais. The question is whether this should, in fact, be classified as a foreign exchange transaction,” said Mr de Sousa, according to BlockTrends.
Another issue for crypto exchanges is most of them run global order books with foreign participants and market makers. Even though the crypto sector may not consider this as foreign exchange, technically they are cross border transactions. Mr de Sousa acknowledged that these global order books are good for price formation.
Concerns about cross border stablecoin payments
These regulatory considerations reflect broader concerns about stablecoin oversight. We originally assumed Brazil’s aim was simply to be able to monitor cross border flows. However, at another event, central bank Deputy Governor Renato Gomes described cross border stablecoin transfers as “worrisome” because they bypass typical regulatory checks required when converting local currency to dollars for overseas transfers, Reuters reported.
“Capital flows become more volatile,” Gomes said, “essentially because almost anyone can use stablecoins to send money in and out of the country.”
Additionally, there are important jurisdictional issues. For example, the issuer of the largest Brazilian Real stablecoin is based in Switzerland, limiting the central bank’s oversight.
With several regions such as Europe, Hong Kong and the United States now rolling out stablecoin legislation, the days when a stablecoin could move freely around the world without legal restrictions look to be numbered. However, so long as the issuers can deal with these complexities in the background, it may still be possible for stablecoin users to have a relatively frictionless experience.
