News  •  Regulation

Argentina's Central Bank Issues Warning to Burgeoning Bitcoin Ecosystem

| Published on May 29, 2014 at 15:09 BST

Argentina's central bank (BCRA) has issued a statement warning the public of the risks inherent in using digital currencies.

The bank, headed by Juan Carlos Fabrega, reiterated that "virtual coins" are not issued by the central bank or any other international monetary authority and, therefore, are not legal tender.

Its statement goes on to highlight cryptocurrency's potential for use in criminal activity:

"Internationally, however there is still no consensus on the nature of these assets, various authorities have warned of [their] possible use in money laundering operations and various types of fraud."

Meanwhile, since there are no government-level mechanisms to ensure the "official value" of digital currencies, users are told that they have shown great volatility so far and have experienced substantial and rapid price changes.

Finally, the statement concludes that "the risks associated with transactions involving the purchase or use of virtual coins as payment, are supported exclusively by their users."

Volatility problems of its own

Currency restrictions have caused significant issues for Argentinians in recent years, as the government has struggled to boost confidence in the national currency, the peso, by restricting the dollar.

Inflation over the past year reached 100% by some estimates, and past crises have been even worse, with inflation reaching nearly 5,000% in 1989, resulting in massive food shortages and riots around the country.

This history of instability has a created a population desperate for a form of currency that better holds onto its value, leading to a thriving currency black market that generally favours the dollar, but has now also started adopting bitcoin.

This recent trend has seen a number of digital currency exchanges opening in the country and analysis has shown that Argentina's early adopters are prepared to pay a premium for their bitcoin.

CoinDesk recently spoke to Alan Safahi, CEO of cash-to-bitcoins service ZipZap, who said:

“We see a lot of pent-up demand for bitcoin in Argentina. I was there a couple of months ago – people in the streets come up to you and try to convert your dollars into bitcoin.”

He explained that in countries like Argentina, Venezuela and Nicaragua, with their closed economies and strict financial controls: “Those are the markets where bitcoin volatility actually looks really good!”

Argentine bank image via Diego Silvestre / Shutterstock.com

Argentina

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