Colombia made a significant decision on Aug 17, 2022, announcing that the country may introduce its own digital currency soon. As per the director of Colombia’s tax and customs agency, the new government of the South American country plans to make financial transactions simpler and more accessible to the citizens, and digital currency can serve as the best option to achieve the ends.
Colombia’s Digital Currency, A Weapon To Curb Tax Evasion
The Colombian government’s decision is a tactic to curb tax evasion and track the origin of transactions. As crypto or digital currencies are minted on a digital ledger hence are easily traceable and have comparatively fewer chances of a facade that is so common in fiat currency.
Besides launching digital currency, the country restricts monetary transfers of over 10 million Colombian pesos, which equals $2400.
The newly elected president, Gustavo Petro, intends to bring pathbreaking approaches to the fintech sector and open new avenues for the country’s youth. He seems optimistic about digital currency’s role in developing the country’s economy. In an interview last year, Petro made a satirical yet relevant statement that the country should focus on mining more bitcoin rather than wasting money on cocaine production.
Regarding the new policy maker’s opinion regarding digital currency launch, tax evasion is expected to make up to 6 to 8% of a country’s GDP.
A Growing Trend Among Countries To Create CBDC
Colombia is not the first country to launch its digital currency; earlier, China and India made such attempts. China has already come up with their ‘yuan live’, a digital currency; however, India is yet to launch one.
Colombia and other Latin American countries have shown a positive approach to cryptocurrency as they believe it has the power to help any economy gain stability. The advantage of CBDC is that, unlike cryptocurrencies, a central authority regulates them; hence chances of illegal capital use remain under control.
With the growing demand for innovative technology, the central banks find CBDC as a way to directly connect with customers by eliminating the role of any third-party vendors.
It won’t be wrong to say that the increasing popularity of crypto has a downside for the central bank. They now run the risk of losing a monopoly over the supply of money and financial transactions. Therefore, it’s still not clear whether or not countries opting to create their own currency will address this issue.