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Brazil Legalizes Cryptocurrency as a Payment Method

Brazil has not designated Bitcoin as a legal tender. Still, it has done the next best thing: it has passed legislation legalizing cryptocurrencies as payment throughout the country, providing a regulatory boost to digital currency adoption and ecosystem expansion.

Brazil's Chamber of Deputies has approved a regulatory framework that will allow cryptocurrencies to be used as a form of payment in the country.

The document, signed under the code PL 4401/2021, includes virtual currencies and frequent traveller rewards from airlines (popularly known as "miles") in the definition of "payment agreements" subject to supervision by the country's Central Bank.

The law, which has already been approved and only needs the signature of the President of the Republic to become law, grants legal status to payments in cryptocurrencies for goods and services—but not legal tender.

Brazil has made significant strides in cryptocurrency regulation and investor adoption. It currently has the most cryptocurrency ETFs in Latin America. Most of the country's major banks and brokers provide some form of exposure to cryptocurrency investments or similar services such as custody or token offerings. Even Ita, one of Brazil's largest private banks, is working on tokenizing assets as part of its future suite of investor services.

Following the passage of the law, it will be up to the executive branch of government (the President and his cabinet) to decide which body or office will be in charge of overseeing the matter—only tokens classified as securities will fall under the jurisdiction of the CVM, Brazil's equivalent to the SEC.

Until now, the most involved public agencies in the area have been the country's own Central Bank and the CVM. Furthermore, the law establishes rules for the operation of cryptocurrency exchange platforms and third-party custody and administration of cryptocurrencies.

The law does not mention issuing a central bank digital currency; however, the country has already made significant progress.

One of the most important aspects of the regulation is the requirement for service providers to keep their funds separate from their clients to avoid a situation similar to that of FTX, in which the exchange uses its clients' funds for its financial operations.

The law avoided a provision that would have granted cryptocurrency miners tax breaks. It also acknowledged that digital currencies facilitated criminal operations due to their anonymity, calling for "closer monitoring" of the industry.

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