Uruguay passes law regulating crypto, could set precedent for rest of Latin America

Uruguayan President Luis Lacalle Pou signed a bill in October to regulate cryptocurrency in the country.

The new law, which was first proposed more than two years ago, recognizes cryptocurrency as a virtual asset and gives the Uruguayan Central Bank the power to regulate the currency.

The Central Bank will be responsible for supervising virtual asset service providers (VASPs) and issuing permits, while it will be the job of the Financial Services Supervisory Authority (SSF) to identify exchanges, wallets and miners that can be considered VASPs.

While several Latin American countries have adopted crypto regulations—including some with unstable economic and political landscapes such as El Salvador, Venezuela, and Argentina—Uruguay’s stable democracy could set a precedent for crypto regulation in the rest of Latin America. .

Crypto regulation around LatAm

Along with Uruguay, ten other Latin American and Caribbean countries have introduced frameworks that regulate the use of cryptocurrency, including Brazil, Venezuela and Argentina: the latter is ranked as the leading country in Latin America for the value of crypto received. Between July 2023 and June 2024, Argentina received $91.1 billion in crypto, while Brazil received around $90.3 billion.

In Mexico, a fintech regulation bill has been in place since March 2018. Cryptocurrencies are known as “virtual assets” and there is no law prohibiting the exchange of cryptocurrency for services or operations. Thus, cryptocurrencies can be used as payment at institutions that accept them as a form of payment, and there are machines that can buy bitcoins from or sell bitcoins to customers.

In El Salvador, Bitcoin has been recognized as legal tender, with Bitcoin ATMs popping up all over the country and the government announcing plans for a “Bitcoin City.” However, journalist Katarina Hall recently reported on the great difficulties she encountered trying to spend it, with all establishments she visited refusing to accept Bitcoin as payment.

Not all Latin American countries have been so receptive to cryptocurrency development. In Honduras, the government has expressed concern about the significant risks associated with the unregulated currency and has banned banks from handling cryptocurrencies in any capacity. Meanwhile, the Guatemalan government strongly advises against the use of cryptocurrencies; although they are technically allowed, they are not recognized in a legislative framework and do not function as a legal means of payment.

Uruguay can be considered the most politically and economically stable of the Latin American countries that have created a legal framework for cryptocurrencies so far. The Economist’s 2023 Democracy Index found that Uruguay had a democracy score of 8.66 out of 10, ranking 14th in the world and making it the most democratic country in the Americas. In 2023, Uruguay had a Gross Domestic Product (GDP) per capita of about $22,565, while Venezuela’s was estimated to be $3,740.

Is Uruguay setting a precedent for crypto regulation in the region?

The strong position in which Uruguay finds itself may set a precedent for other Latin American countries in similar stable circumstances. By regulating cryptocurrency, Uruguay not only legitimizes and lends credibility to virtual assets, but also increases confidence among potential investors and users, including those in surrounding countries.

Emiliano Zapata, Uruguayan Blockchain Developer and Professor at ORT University in Montevideo, spoke to Latin American Reports about the future of crypto in Uruguay. He explained that as things stand, crypto is still not “widely adopted” in Uruguay, despite assumptions that Latin American countries tend to use crypto “because it solves a lot of issues.”

Image credit: Emiliano Zapata via LinkedIn

He noted that in neighboring Argentina there are significantly more “everyday people” who regularly use crypto. While Zapata doesn’t believe that crypto regulation will necessarily lead to an increase in the early use of crypto in everyday scenarios, he does believe that the new law could “be extremely beneficial for business development” in the country.

Read more: How Argentines are using cryptocurrency to avoid high taxes on US dollars earned abroad

Zapata elaborated on the conditions that make Uruguay a favorable location for crypto expansion, explaining that Uruguay tends to be perceived as a consistently stable country without any “highly polarized landscape,” even despite the recent election period.

He explained, “This kind of stability fosters a good environment to develop any kind of commercial activity here in Uruguay,” something he believes “separates us a little bit from the rest of most of Latin America.” Although Zapata noted that Uruguay’s tradition of being “conservative” could risk limiting the full potential of crypto, he said the country has “all the conditions” needed to become one of Latin America’s leaders in industry.

While Zapata acknowledged that the power assigned to the Central Bank and the recognition of cryptocurrencies in a legal framework will “add layers of bureaucracy and regulation”, he said this is necessary to provide the “safety and security” needed to “develop or domestic or foreign projects” in Uruguay.

Martín Benítez Aramendía, Vice President of the Uruguayan Chamber of Fintech and Head of Business Development at financial payments company Ripio, echoed Zarpata’s observations. He said Latin American Reports that Uruguay functions as “a hub for business”, given that Uruguay “is the most economically and legally stable country in the region”, which creates “a natural and organic interest in cryptocurrency in Uruguay”. Benítez explains that this interest has manifested itself in investments and payments between Uruguay and Asian countries, including China.

Image credit: Martín Benítez Aramendía via X

Benítez added that, due to the recent economic crisis, many Argentines have settled in Uruguay, where they participate in cryptocurrency transactions. He explained, “There is a natural use of cryptocurrency in Uruguay, but it is also influenced by Argentina and Brazil, which have their operations here.”

In most Latin American countries, he said, cryptocurrency “is mainly used for investment, not as an investment asset in itself,” but noted that Argentina is an exception to this rule, where “it is used every day, especially for trade and access to dollars.” For countries like Argentina, “cryptocurrencies have offered a solution that the market wasn’t offering.”

He described the new law as a “very positive” move, noting that there had long been concerns that it might not be passed at all. Now, the hope of the Uruguayan Fintech Chamber is that the Central Bank will be quick to clarify the regulations it will impose on crypto companies, so that Uruguay can “consolidate the advantage” it currently has over other countries that are still develop their own laws.

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