The Colombian government has revealed that it plans to launch a digital currency. One of the purposes of this new currency is to curb tax evasion and enhance the traceability of citizens’ transactions. The proposed measures would also limit cash payments and transactions over 10 million Colombian pesos ($2,400).
Colombia to launch its own digital currency
Many countries are now looking to digitize parts of their economies to better understand and control the flow of money in their economies. The Colombian government plans to launch its own digital currency in the near future, according to a statement provided by Luis Carlos Reyes, head of the Colombian Tax Agency, DIAN.
Reyes told local news outlet The Weekly that it would be one of the proposals made by newly installed President Gustavo Petro to curb tax evasion, which is estimated to account for 6 to 8 percent of Colombia’s gross domestic product . At this point, Reyes said the purpose of the digital currency is to enhance the traceability of these transactions so that merchants cannot use cash as a payment method to evade taxes.
Regarding the effectiveness of the measure, Reyes estimates:
This equates to six or eight tax reforms that the country has already done to get a maximum of 1% or 1.5% of GDP.
However, Reyes did not reveal any features of the digital currency or how it would work with the country’s traditional payment system.
The introduction of digital currency will also be accompanied by other measures currently being studied. One of the measures is to limit cash payments above a certain amount. Reyes confirmed that the amount would be 10 million Colombian pesos, or about $2,400.
However, the changes could disrupt payment channels for Colombians. While the use of cash for payments has decreased during the Covid-19 pandemic, cash is currently one of the main payment methods in Colombia. Statistics from Colombia’s central bank show that the volume of bills in circulation has risen to the highest level in 17 months.
According to the Financial Supervisory Authority, Colombians still prefer cash as their primary payment method when paying for transportation (94%), groceries (80%), mobile phone top-ups (78%) and rent (77%).
What do you think of Colombia’s digital currency proposal and proposed restrictions on cash payments? Let us know in the comments section below.
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