Brazil's Central Bank Prohibits the Use of Stablecoins and Cryptocurrencies for Cross-Border Payment Settlements

In a move to regulate digital international payments, Brazil's central bank has prohibited the use of stablecoins and cryptocurrencies for settling overseas transactions. The new rule, which takes effect on October 1, updates the existing regulations for electronic foreign exchange providers. According to the new rules, payments between providers and their foreign counterparts must be made through traditional foreign exchange transactions or non-resident real-denominated accounts in Brazil, with cryptocurrencies no longer being an option. This means that remittance firms can no longer convert customer funds into cryptocurrencies like USDT, USDC, or bitcoin to settle payments abroad. However, the new rule does not prohibit cryptocurrency trading, and investors can still buy, sell, hold, and transfer digital assets through authorized providers. The change primarily affects companies that had incorporated stablecoin settlement into their cross-border payment services. Brazil's crypto market, which sees a monthly transaction volume of $6 billion to $8 billion, will likely be impacted by the new regulations. The country has seen significant growth in crypto adoption, with approximately 25 million Brazilians holding or transacting in digital assets. The new rule also imposes restrictions on electronic foreign exchange providers, requiring them to be authorized by the central bank and to use segregated accounts for client funds. Additionally, providers will be required to submit detailed monthly reports. In a separate development, the rule expands the scope of electronic foreign exchange to include transfers related to financial and capital market investments, with a transaction limit of $10,000. The move is part of a broader regulatory effort, with industry associations pushing back against the extension of the IOF financial transaction tax to stablecoin operations. The regulator's goal is to establish clear guidelines for the use of cryptocurrencies in the market, while ensuring that they do not become a primary means of settlement for cross-border transactions.