Colombia to prevent tax evasion with national digital currency

Amid Colombia’s economic growth beat expectations in the second quarter, an official at the country’s tax and customs agency has hinted at some national digital currency plans.

Luis Carlos Reyes, the head of the Colombian Tax and Customs National Authority, claimed that the government of newly inaugurated Colombian President Gustavo Petro will seek to create a digital currency to prevent illicit financial activity like tax evasion.

Colombia’s digital currency plans are part of the country’s new monetary policy measures aiming to increase transparency of financial transactions, the official said in an interview with the local magazine Semana. According to the report, tax evasion in Colombia is estimated to account for 6% or 8% of the country’s gross domestic product so far.

Reyes also pointed out that a potential digital currency would be a major benefit for user experience, stating: “The creation of a digital currency would make these transactions easier for the consumer.”

The official did not specify what kind of digital currency exactly the Colombian government will be looking to launch, a central bank digital currency (CBDC) or rather an asset-backed national currency similar to Venezuela's Petro digital currency project.

Hernando Vargas, technical deputy governor at the central bank of Colombia, previously considered implications of a retail CBDC in Colombia earlier in 2022. The official noted that cash is the preferred instrument of low-cost payments in Colombia, pointing to potential threats from cryptocurrencies and stablecoins in certain circumstances. He stated:

“A line of defense against a widespread use of cryptocurrencies and stablecoins is weaker in Colombia than in other jurisdictions and the discussion about the adoption of a retail CBDC becomes particularly interesting.”

The news comes shortly after new Colombian president Petro has sworn into office on Aug. 7. As previously reported, Petro is known for expressing support for cryptocurrencies like Bitcoin (BTC). Back in 2017, Petro suggested that BTC could remove power from the government and return it to the people. “Virtual currency is pure information and therefore energy,” Petro said at the time.

Related: Official explains why China CBDC should not be as anonymous as cash

According to the latest reports, Colombia’s economy beat expectations in the second quarter in a boost for Petro’s government, with GDP reportedly rising 12.6% versus the expected 12.1% growth.