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Colombia ready to launch digital currency



 Colombia is an amazing country. I moved to Medellín, the second largest city, this year - and I really can't say enough good things about it.


The weather is perfect. People are friendly and very patient with my clumsy attempts to learn Spanish. And the mountains...

However, worrying news is circulating today.


Digital currency issued by the central bank

Luis Carlos Reyes, the head of Colombia's Tax and Customs Agency, announced that Colombia is ready to create a digital currency to curb financial crimes such as tax evasion.


Tax evasion is difficult to control in Colombia. While Medellín has established itself as something of a technology hub in recent years, cash is still the predominant means of payment in the country. Reyes estimates that tax evasion accounts for between 6% and 8% of GDP annually.


"That equates to six or eight tax reforms that have been implemented in the country that will yield a maximum of 1% or 1.5% of GDP," Reyes said in an interview.


Shortly thereafter came the punch line - "This is important to improve the traceability of payments in business".


Authoritarian

And therein lies the problem with central bank-issued digital currencies (CBDCs). The potential outcome here is highly dystopian, as the government can track what citizens spend their money on, what their net worth is, and where they spend it -- with the ability to freeze accounts at will.


Sure, there are benefits like increased tax collection with corresponding growth benefits. But at what cost? It's terrifying to hand over so much power to governments - and I don't think you have to be an extreme libertarian to agree with that.


new regime

This is of course due to the momentous election result in June, when Gustavo Petro became the first leftist leader in Colombian history. The former guerrilla fighter won the second round with a 50.35% share, continuing a recent trend of leftist victories in Latin America.


And CBDCs are also fast becoming a trend in Latin America, with Colombia joining Peru, Mexico and Brazil in making plans to launch CBDCs as well.


A financial overhaul may be needed as Colombia, like many other countries, is struggling amid the current macro environment. However, taking a drastic step to launch a CBDC feels ill-advised, extreme, and potentially disastrous, depending on how you do it.

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