Argentina was on the brink of a cryptocurrency craze. The Bank of England had other ideas.

Argentina is experiencing a crypto explosion. In 2021, the stablecoin segment surged sixfold as millions of new consumers entered the market. The country is ranked tenth in Chainalysis’ crypto adoption ranking. Local conditions are ideal for implementation: 58 percent inflation, currency depreciation, and a lack of access to US cash. Crypto is the best solution for many Argentines to protect their wealth.

Argentina’s Central Bank (BCRA) then attempted to apply the brakes.

Banks were getting involved as well. Last Monday, Banco Galicia (GGAL), Argentina’s largest private bank by market capitalization, offered the ability to purchase and sell cryptocurrencies to its platform. Users can now purchase bitcoin (BTC), ether (ETH), USDC, and XRP using the bank’s app’s investing area. The domestic digital bank Brubank began offering comparable services on the same day. Both appeared to be significant steps toward crypto acceptance in Argentina.

The BCRA restricted banks from selling services for any digital assets not authorised by the central bank on May 7, just days after the banks’ disclosures. In other words, banks can no longer directly support the purchase or sale of cryptocurrency. Banco Galicia’s brand-new service had to be halted.

The prohibition came as a shock to the banks involved in crypto. Banco Galicia had the BCRA’s verbal approval to launch its new feature, sources close to the matter told CoinDesk, explaining that a Nasdaq-listed bank would not get into crypto without a real endorsement from the local regulator. Moreover, up to that point, there was no clear regulation preventing financial institutions from operating in the crypto sector.

It wasn’t a total crackdown, however: When Argentines trade on local cryptocurrency exchanges, they can still use their bank accounts to send and receive pesos.

But now there is.

According to Lirium, a Liechtenstein-based crypto company that was going to operate the feature offered by Banco Galicia, there were four other Argentinian financial institutions planning to launch a crypto trading service after Banco Galicia.

Speculation about the reasons for the BCRA’s decision is varied. One of the strongest suspicions is the BCRA’s need to please the International Monetary Fund (IMF), after a $45 billion debt deal that the country signed in March with the organization, which includes a provision discouraging the use of cryptocurrencies. However, after an information request made by the local Nongovernmental organization Bitcoin Argentina weeks ago, the BCRA said that “crypto assets are not explicitly a target or benchmark of the program.”

Sources close to the matter not authorized to speak publicly told CoinDesk that the BCRA’s ban simply reflects a lack of knowledge of the crypto world, and its fear that banks will ask for U.S. dollars to buy and sell crypto. Currently, the main concern of the monetary authority is the scarce amount of U.S. dollar reserves, especially the liquid reserves, estimated by consulting firms to be negative. Due to that lack, for example, Argentines are prevented from acquiring more than $200 per month through banks and companies of different industries face production struggles due to import restrictions.

However, Banco Galicia was not going to get its crypto with dollars from the BCRA’s reserves, but through a liquidity circuit provided by OSL, a Hong Kong-based digital-asset trading platform that began operating in Latin America last October. Exchanges are wary
The BCRA’s decision hasn’t directly affected Argentine crypto exchanges. But they are nervously watching for signals.

According to sources, the BCRA’s decision generated bewilderment among the numerous exchanges operating in Argentina, which have recorded high growth rates in the last three years, largely because Argentines are not prevented from acquiring dollar-pegged stablecoins on their platforms. Consequently, in 2021, for example, the use of stablecoins increased sixfold, with DAI leading the way. In Argentina alone, crypto exchange Lemon already surpassed 1 million users weeks ago, the company said. Belo, an exchange that began operating in September 2021, has already surpassed 170,000 users and, at a 100% monthly growth rate, plans to surpass a million users before the end of the year.

But despite the high growth rates, the exchanges are still nervous about the regulatory scenario. They all operate without a financial institution license, such as those held by Banco Galicia and Brubank, and most of them interact with the Argentine market — taking and returning Argentine pesos — as payment service providers, an activity regulated by the BCRA, since there is no special identity for exchanges in the country. The BCRA, for now, has no measures planned against exchanges, sources at the monetary authority told CoinDesk. It’s understandable: Exchanges are helping address Argentines’ desperation to get rid of their pesos amid a foreign exchange restriction that prevents locals from acquiring dollars through banks. And all the companies provide their services without using BCRA’s reserves.

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  • Argentina was on the brink of a cryptocurrency craze. The Bank of England had other ideas.
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