The Central Bank of Brazil, Banco do Brasil, has taken a new stance to classify traded cryptocurrencies in line with the International Monetary Fund, or IMF guidelines, the bank announced on August 26.
Under the new crypto classification standards, traded digital assets will be regarded as non-financial products and the implication of this is that traded cryptocurrencies will be treated as goods on the balance sheet of the central bank.
The balance sheet of a central bank is no different from that of a commercial bank. It draws a picture of the financial institution and consists of equity, assets, and liabilities.
The central bank records the buying and selling of cryptocurrencies in its import and export statistics because trading of digital assets involves the execution of foreign exchange contracts. Since Brazil is an importer of digital assets, such a move could lower the trade surplus on the Bank of Brazil’s balance sheet.
Brazil Central Bank Adopts IMF Guidelines For Crypto Classification
Cryptocurrencies, pioneered by bitcoin, are still in their infancy stages as they have been in existence for just over a decade. Governments all over the world are still working on how to regulate or treat them.
At the same time, international financial watchdogs such as the IMF, the Bank of International Settlements (BIS), and the Financial Action Task Force (FATF) amongst others are still coming up with legal frameworks for treating digital assets or regulating companies in the crypto space.
Part of the document written by the Statistics Department of the IMF titled “Treatment of Crypto Assets in Macroeconomic Statistics” points at the fact that cryptocurrencies did not exist when the latest revision took place.
“Crypto-assets did not exist when the latest revision of the macroeconomic statistical manuals took place, consequently no international guidelines are available, except a reference in the Monetary and Financial Statistics Manual and Compilation Guide (MFSMCG) clarifying that Bitcoin-like crypto assets are nonfinancial assets.”
The paper further added that “crypto-assets combine properties of currencies, commodities, and intangible assets. This should guide their classification in macroeconomic statistics.”
According to the central bank’s report, cryptocurrency mining will be treated as a productive process. The report admitted that the Balance of Payments Statistics Committee, “recommended classifying the buying and selling of crypto-assets (specifically those for which there is no issuer) as assets produced, which means that it is compiled into the balance of payments asset account. Cryptocurrency mining activity, therefore, is now treated as a productive process.”
A Decision Met With Mixed Reactions
The central bank’s decision to adopt IMF guidelines was met with mixed reactions.
João Canhada, who co-founded the Brazilian bitcoin exchange FoxBit with Guto Schiavon in 2014, welcomed the central bank’s move, stating the financial regulator has proven to be aware and in support of innovations in the cryptocurrency.
Canhada called the decision a “giant evolution in the regulator’s understanding in addition to showing the market that Brazil’s central bank is aware of the innovations and evolution of the local cryptocurrency ecosystem.”
“The central bank has been at the forefront of great initiatives to meet and talk with the market in recent years, this opening is starting to pay off, this step today brings more legal certainty to the sector and more confidence to the legacy market about the seriousness of this new market,” he added.
Uzzo CEO Thiago Lucena begged to differ, claiming that the classification of traded cryptocurrency as non-financial products will reinforce its classification as an asset but increases bureaucracy and transaction costs.
“The problem is that once classified as a product we have to declare the importation of cryptocurrencies through exchange contract, thereby increasing bureaucracy, levying taxes and consequently the cost of the transaction,” argued Lucena.