Countries across the Latin American region have been affected by severe devaluation of their local currencies, coupled with high inflation rates. One of the effects of this situation is that the popularity of digital assets has risen in the region as residents began viewing them as a way of storing value and consequently started shifting parts of their savings into crypto.
Chile is no exception to this trend. Despite having been Latin America’s “steadiest economy in the last three decades”, it has recently entered the list of top five countries most affected by inflation in the region: In August 2022, its y.o.y inflation rose to 14.1%, the highest in 28 years. At the same time, the Chilean Peso hit a record low. As it is difficult to open a foreign currency bank account in Chile and many people are unable to meet the related requirements, Chileans started to turn to stablecoins as one way to protect the value of their financial assets. In fact, local crypto exchanges experienced a 50% increase in stablecoin transactions within three months in mid 2022 (May-July). Also a study about the investment options available in the market conducted by Bain & Company in 2022 points in the same direction: Crypto has risen to be one of the most popular investment options by being the first choice for 23% of the surveyed people, coming third after investment funds (36%) and real estate (24%).
Further, as many other countries around the globe, Chile started looking into establishing a central bank digital currency (CBDC). The decision for the roll-out of the digital Chilean Peso was originally planned for early 2022 but was postponed by the Banco Central de Chile (BCC) (Chile’s Central Bank). According to a report published by the BCC in May 2022, a more profound analysis of associated benefits and risks needs to be carried out before this decision can be made. Consequently, it is further outlined that the institution seeks to gather more information and is thus planning to hold a series of meetings with various stakeholder groups. It will publish the conclusions from these consultations in a next report (this report has not been published till date: 30.03.2023).
Turning the focus towards digital asset regulations, Chile has undertaken steps to provide regulatory clarity. A prominent one being the Ley Núm. 21.521 (also known as the Fintech and Open-Banking Bill and the Chilean Fintech Law) that came into effect in February 2023. The aim of this law is to establish a general framework to encourage the provision of financial services through technological means (Article 1). As the sector was previously unregulated, the law puts emphasis on providing legal certainty for technology-based financial services providers and related activities and assets, among them virtual financial assets and crypto assets. These assets are defined as “digital representation of units of value, goods or services, with the exception of money” (Article 3.3) and are categorised as financial instruments (Article 3.8).
Consequently, service providers that offer custody or exchange services for such assets are subject to the supervision of the Comision para el mercado financiero (the Financial Market Commission and hence Chile’s financial regulator) and therefore have to register with the “Comision” and adhere to the requirements outlined in the law, including the information and dissemination obligations (Article 8) and the corporate governance and risk management requirements (Article 12).
The attention lies now on the implementation and further specification of the law: All eyes are on the “Comision”, which is tasked with developing the necessary norms, rules, and standards within 18 months from the publication date. The “Comision” publishes regular updates on its website.
Interested to learn more about the digital asset scene in other Latin American countries? Then have a look at our articles about Brazil, Argentina and Colombia. Enjoy reading!
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