Published: July 19th, 2021
Paraguay is set to announce this week that it’s about to start regulating cryptocurrency, an essential first step on the road to normalisation and eventual acceptance as a tradable asset and form of payment in the country.
A leaked draft of the bill shared with Bloomberg would require that cryptocurrencies like Bitcoin and Ethereum be registered with Paraguay's national tax authority. It also would establish rules for cryptocurrency mining and exchange-based crypto trading, plus peer-to-peer marketplaces in the DeFi space, where crypto traders would also be expected to register for tax purposes.
The bill has a long a convoluted history. Prodded onward by El Salvador's pro-Bitcoin government, Paraguayan congressman Carlos Rejala announced earlier this year that he would start work on a new law that would herald the arrival of Bitcoin and deliver its potential benefits to the country’s investors.
That kicked off a raft of media speculation, with some pundits suggesting that Rejala was seeking to copy El Salvador’s lead and pave the way for Bitcoin to become legal tender in Paraguay, something he formally denied.
Having satisfied concerns that he might be moving too fast, the leaked version of the bill has been met with a frustrated sigh by crypto advocates.
Crypto blogger Jorge Pessoluna, who gained access to the leaked draft, told Bloomberg that 90 per cent of it ‘is a literal transcription of two earlier bills that didn’t make it past committee to be voted on for formal enactment, ’ neither of them originating in Paraguay.
‘There is text taken from a bill that went before the Argentinean Congress and text from another from Colombia’s parliament’. There are also passages cribbed from a Venezuelan blog and others from an antivirus software vendor website.
‘These are not places that any well-informed actor would look to for inspiration or the guidance needed to take something this important forward.’
The Colombian text that found its way into Rejala’s draft bill was dismissed in 2018, a spokesperson for the Colombian government told Reuters. A new government commission is leading efforts to draft a new bill in consultation with several public and private stakeholders, including people from the crypto industry.
Legal analysts have declared the Paraguayan bill dire. They say its passages proposing new crypto taxes and a recovery fund should things go wrong with its implementation both offer little in the way of concrete steps for practical enactment.
Congressman Rejala has apparently invited crypto experts to review the legal text, hence the leak. Jorge Pessoluna says he counts himself amongst the disgruntled pundits asked to review and comment. Still, he says that everyone involved has now agreed to work on a new and more participatory proposal.
Amid the consternation caused by the first draft of Rejala’s bill, a Paraguayan Senator named Fernando Facetti has entered the with a counter-proposal.
He’s suggesting a law with the same primary objectives as Rejala’s, which is to provide a regulatory and legal framework where the cryptocurrency ecosystem of traders, miners, exchanges, startups, and consumers can operate safely. Paraguay's Fintech industry group has since endorsed the new draft bill.
Whose approach will win the day? Facetti arguably has more heft politically than Rejala. He’s a leader of one of the country’s main opposition parties, while Rejala’s party only holds two seats in the parliament. But the chances of passing any Bitcoin bill have rapidly improved as both politicians now say they’ll work together on a joint bill.
That may improve the chances of passing a crypto bill, but the entire initiative has stirred up a nest of criticism in the country.
Industry leaders say that conversations so far around both bills have been too secretive and lacking the close involvement of critical stakeholders in technology, finance, and consumer advocacy. They're also accusing the two politicians of overreach, saying the proposed scope of the joint bill is fundamentally more extensive than the original draft proposed by Rejala. To bring it to life would require a more powerful specialist oversight agency, and all the costs associated with it.
That could make the new bill counterproductive if enacted in its current form. It would lack vital provisions to support and encourage Paraguayan innovation and fail to provide incentives for investment and economic development opportunities. Without those, already entrenched industry players elsewhere could come into the country’s crypto market and dominate it at the expense of domestic providers.
However, there is a consensus that the bill’s overall aims are worth pursuing, even if the details are imperfect. Crypto traders and companies in Paraguay struggle to work effectively within established banking and payments systems. Regulation could help address that, but to bring a law into force, it will need to reflect Paraguayan society's legal, economic, and technical realities.
The two politicians now say they’re ready to move forward, even amid the uncertainties. ‘Everything is still on the table,’ Facetti told reports last week. ‘We are still planning on introducing a new joint bill before the end of July.’
Paraguay’s Latin American neighbour El Salvador made the headlines in May when it announced plans to make Bitcoin legal tender in the country. Led by crypto-boosting president Nayib Bukele, the tiny Central American government aims to be the first nation to formally blend Bitcoin into its national financial system, making it a mainstream commercial option for any payment or investment.
Those plans hit a roadblock in June, however, when Chicago-based Strike, whose digital wallet is popular with US-based Salvadorans, revealed that it did not possess the requisite state-by-state licensing that would allow it to operate legally in every US jurisdiction.