Uruguay Establishes Regulations For Cryptocurrency, Potentially Influencing The Entire Latin American Region

Uruguay’s President Luis Lacalle Pou signed a bill in October to regulate cryptocurrency in the country.

The new law, which was initially proposed over two years ago, recognizes cryptocurrency as virtual assets and gives the Uruguayan Central Bank the power to regulate the currency.

The Central Bank will be responsible for overseeing virtual assets service providers (VASPs) and granting them permits, while it will be the job of the Superintendence of Financial Service (SSF) to identify exchanges, wallets, and miners that can be considered VASPs.

While several Latin American countries have enacted crypto regulations — including some with volatile economic and political landscapes like 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 regulating the use of cryptocurrency, including Brazil, Venezuela, and Argentina: the latter of which has been ranked the top country in Latin America for crypto value received. Between July 2023 and June 2024, Argentina received an estimated $91.1 billion worth of crypto, while Brazil received approximately $90.3 billion.

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

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

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

Uruguay can be considered the most politically and economically stable out of the Latin American countries which have established a legal framework for crypto thus far. The Economist’s 2023 Democracy Index found Uruguay to have 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 approximately $22,565, while Venezuela’s was estimated to be $3,740.

Uruguay setting a precedent for crypto regulation in the region?

The strong position Uruguay finds itself in could well set a precedent for other Latin American countries in similarly stable circumstances. By regulating cryptocurrency, Uruguay is not only legitimizing and lending credibility to the virtual assets, but also increasing confidence among potential investors and users, including those in surrounding countries.

Emiliano Zapata, Uruguayan Blockchain Developer and Professor at the ORT University in Montevideo, spoke to Latin America Reports about the future of crypto in Uruguay. He explained that, as things stand, crypto is not yet “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 “day-to-day people” who use crypto regularly. While Zapata does not believe that the regulation of crypto will necessarily lead to an increase in the quotidian use of crypto in everyday scenarios, he believes that the new law could “be extremely useful for business development” in the country.

Zapata elaborated on the conditions which make Uruguay a favorable location for the expansion of crypto, explaining that Uruguay tends to be perceived as a constantly stable country without any “heavily polarized landscape,” even in spite of 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 which he believes “separates us a little bit from the rest of the majority of Latin America.” Although Zapata noted that Uruguay’s tradition of being “conservative” may risk limiting the full potential of crypto, he said that the country has “all the conditions” necessary to become one of the Latin American leaders in the industry.

While Zapata acknowledged that the power assigned to the Central Bank and the recognition of crypto in a legal framework will “add layers of bureaucracy and regulation”, he said that this is necessary to provide the “security and the safety” needed to “develop either local 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 told Latin America 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.

X MB Image credit: Martín Benítez Aramendía via X

Benítez added that, due to the recent economic crisis, many Argentinians have based themselves in Uruguay, where they partake in cryptocurrency transactions. He explained, “There’s a natural use of cryptocurrencies 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 primarily used for investments, not as an investment asset itself,” but noted that Argentina is an exception from this rule, where “it is used daily, especially for commerce and access to dollars.” For countries like Argentina, “Cryptocurrencies have provided a solution that the market wasn’t offering.”

He described the new law as a “very positive” move, pointing out that there had long been concerns that it might not get passed at all. Now, the Uruguayan Fintech Chamber’s hope is that the Central Bank will be prompt in clarifying the regulations it will impose on crypto companies, so that Uruguay can “consolidate the advantage” it currently has over other countries which are still developing their own laws.

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