Regulation
Cryptocurrency Regulation in Peru 2024
Peru is entering the cryptocurrency world with new regulations. This South American country, known for its active economy, has over 32 million people. Peru relies heavily on exports such as copper, gold, zinc, textiles, and fishmeal. The country trades mainly with the United States, China, Brazil, and Chile. Despite being ranked 76th in the Global Innovation Index in 2023, a large portion of the country’s workforce, at least 70% of the total workforce, works in informal jobs.
It was in December 2021 that Peru first introduced a new draft law to define and regulate cryptocurrency transactions. It aims to provide a clearer regulatory framework for the cryptocurrency sector. However, digital currencies are not supported by Peru’s major financial institutions, such as the Central Reserve Bank of Peru (BCRP), the Securities Market Agency (SMV), and the Banking and Insurance and Pension Fund Manager Agency (SBS).
Will the great intuition taken with the introduction of the new cryptocurrency law translate into the complete integration of digital finance into the country’s economic landscape? Only time will tell.
1. Cryptocurrency Regulation in Peru: A General Overview
In Peru, cryptocurrencies are still a gray area. Are they illegal? This is a complex question. Whether they are legal or illegal is not clearly defined by law. This means that you can buy and trade cryptocurrencies in the country. However, there are some restrictions. Advertising cryptocurrency-related financial services is restricted unless you are a regulated financial institution. The Peruvian government is considering a new law to regulate cryptocurrencies. Unfortunately, this move is currently facing some opposition. Recently, a decree made virtual asset service providers subject to anti-money laundering regulations. The law requires these service providers to follow strict compliance measures.
2. Cryptocurrency Regulation in Peru: What’s New
February 20, 2024: Peru has announced plans for a regulatory framework for AI. It has submitted a new bill to Congress.
February 28, 2024: Lima Stock Exchange has added three spot bitcoin ETFs to diversify investment options. These ETFs include iShares Bitcoin Trust IBIT, Invesco Galaxy Bictoin BTCO, and Vaneck Bitcoin Trust HODL.
May 2, 2024: The Council of Ministers has published a draft regulation for the promotion of AI. The draft defines key terms related to AI. And it highlights the potential benefits of AI.
June 7, 2024: The Central Bank of Peru has partnered with India’s National Payments Corporation to create a system similar to India’s UPI. The main objective of the move is to promote financial inclusion. It also aims to improve payment interoperability.
3. Micro Bitcoin Economies in Peruvian Villages
In remote villages in Peru, Bitcoin is having a significant impact on unbanked communities. Motiv, an NGO, has been at the forefront of this shift since 2019. They travel to remote regions to educate residents on the use of Bitcoin. Since late 2020, the NGO has established 16 Bictoin microeconomies, where Bitcoin serves as the primary currency for buying and selling goods and services. This initiative is critical in Peru, where over 50% of the population is unbanked. Most transactions in Peru are done in cash, using the Peruvian sol, which has faced significant inflation. As of June 2024, Lima’s annual inflation rate rose to 2.3%, driven by higher transportation and housing costs. The consumer price index also recorded a slight increase of 0.12% month-over-month.
4. Peru’s New Cryptocurrency Law Explained
In Peru, the new cryptocurrency law was introduced in December 2021. The proposed law aims to define what a cryptocurrency is. It also seeks to outline the responsibilities of virtual asset service providers. It suggests creating a public registry for these service providers. The move will allow users to verify their legitimacy. Specifically, the law requires these service providers to inform users that cryptocurrencies are not considered legal tender in the country. It also requires these service providers to inform users about the risks involved in handling cryptocurrencies. Interestingly, the law allows companies to incorporate and hold cryptocurrencies. Companies are allowed to treat them as inventory or intangible assets depending on their intended use. However, the law does not recognize bitcoin as legal tender.
5. Explanation of the Cryptocurrency Regulatory Framework in Peru
In Peru, cryptocurrencies are considered non-physical assets that can be transferred or sold, like patents or copyrights.
Companies: For Peruvian companies, the sale or transfer of cryptocurrencies is taxed as a capital gain at 29.5%.
Individuals: For individuals, these transactions are not subject to tax unless they are carried out on a regular basis.
VAT and FTT: Cryptocurrency transactions are not subject to VAT as they are not listed as taxable transactions. The Financial Transaction Tax (FTT) applies because cryptocurrencies are often transferred via digital wallets. However, if cryptocurrencies are exchanged for cash and deposited in a local bank, the FTT would apply.
6. Chronology of the evolution of cryptocurrency regulation in Peru
2018: Peru announced PeruCoin, a virtual currency worth about $10 USD. The project ran aground and was suspected of being a scam. It raised concerns about cryptocurrencies.
December 2021: A bill has been introduced to regulate cryptocurrency activities in Peru.
March 2023: The Central Bank of Peru has published a report on the benefits and risks of creating a digital currency.
July 2023: The government has issued a supreme decree, making cryptocurrency exchanges Virtual Asset Service Providers. PSAVs are required to report to the Financial Intelligence Unit.
Final note
In 2024, Peru finds itself navigating uncertain waters when it comes to cryptocurrency regulation. Although not explicitly illegal, cryptocurrencies operate in a legal gray area in the country. The government’s push for new regulations faces challenges, despite recent decrees on anti-money laundering measures for cryptocurrency service providers. Meanwhile, initiatives like Motiv’s Bitcoin microeconomics highlight the practical impact of cryptocurrencies in unbanked regions. Clarity on the state of cryptocurrency regulation is very crucial if the country plans to overcome its economic limitations by utilizing digital economic possibilities.
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