By means of Communiqué nº 25306, of February 19, 2014, the Central Bank of Brazil (Banco Central do Brasil – Bacen) clarified the risks resulting from the acquisition of so-called virtual coins (moedas virtuais) or encrypted coins (moedas criptografadas) and the transactions entered into with such coins. The comments made by Bacen about virtual coins are outlined below. This analysis is particularly relevant now that the use (or misuse) of the "bitcoin" is under suspicion and has been globally questioned.
The virtual coins cannot be confused with the "electronic currency" (moeda eletrônica) governed by Law nº 12865, October 9, 2013 and the applicable regulations issued by the Brazilian Monetary Council (Conselho Monetário Nacional – CMN) and Bacen, regarding payment institutions and payment arrangements. Electronic currencies are resources stored in a device or an electronic system that allow the end user to perform a payment transaction whose value is expressed in Brazilian currency. In turn, the virtual coins have their own form of designation, i.e. they are expressed in another currency which is different from the currency unit issued by a sovereign government, and they do not involve any device or electronic system for actual storage.
The use of virtual currencies and the application of rules to the financial and payments systems worldwide have been discussed internationally by monetary authorities and other public authorities of various countries, with few results so far.
Furthermore, the virtual coins are not issued or guaranteed by any monetary authority. Some virtual coins are issued and processed by non-financial entities and others do not even have any entity responsible for its issue. In both cases, the entities and people who issue these virtual assets or make their intermediation are not regulated or supervised by monetary authorities of any country.
These virtual coins do not have guarantee of exchange into any official currency, nor are backed by real assets of any kind. The conversion value of an asset known as virtual currency for coins issued by monetary authorities depends on the credibility and confidence that market agents have in accepting the virtual currency as a medium of exchange and the expectations of its appreciation. Therefore, there is no government mechanism that guarantees the official currency value of instruments known as virtual coins, and all the risk of its acceptance gets into the users.
In light of the low volume of transactions, its reduced acceptance as a medium of exchange and the lack of clear perception about its trustworthiness, the variation in prices of the virtual coins can be very large and rapid, and may even lead to total loss of its value. In the same line of reasoning, the possible application by monetary authorities of any country, of prudential measures, coercive or punitive damages over the use of these assets, can significantly affect the price of such coins or even the ability of its trading.
Additionally, these virtual instruments may be used in illicit activities, which can give rise to investigations conducted by the public authorities. In this way, the user of virtual assets, even though they perform transactions in good faith, may be involved in these investigations.
Finally, the storage of the virtual coins in electronic portfolios presents the risk that the owner of these assets suffers pecuniary losses resulting from attacks by criminals who operate within the internet.
In accordance with the provisions of paragraph 4 of article 6 of Law 12685/2013, payment arrangements in which the volume, scope and nature of the business, to be defined by Bacen according to parameters set by CMN, are not able to offer risk to the normal functioning of retail payment transactions, are not reached by this law.
Based on the foregoing, Bacen determined that in Brazil the use of the virtual coins has not yet offered risk to the Brazilian Financial System, particularly to the retail payment transactions. Anyhow, Bacen is following closely the evolution of the use of such instruments (virtual coins) and the discussions in the international forum on the subject, mainly about their nature, property and operation, for the purpose of adopting any measures within the scope of its legal competence, if applicable.
If and when the Brazilian regulator concludes that there is a risk to the Brazilian Financial System by the use of virtual coins, the matter will be regulated. For the time being, Bacen understands that there is no such risk.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.