Central Bank of Bolivia

Board of Directors

BOARD RESOLUTION NO. 144/2020

SUBJECT: FINANCIAL ENTITIES MANAGEMENT – PROHIBITION OF THE USE OF CRYPTOASSETS IN THE NATIONAL PAYMENTS SYSTEM AND REPEAL OF BOARD RESOLUTION NO. 044/2014 OF MAY 6, 2014

VISTOS:

• The Political Constitution of the State, of February 7, 2009.
• Law No. 901 of November 28, 1986 on the Creation of a New Monetary Unit.
• Law No. 1670 of October 31, 1995 on the Central Bank of Bolivia.
• Law No. 393, of August 21, 2013 on Financial Services.
• The Statute of the BCB, approved by the Highest Authority of the Issuing Entity through Board Resolution No. 128/2005 of October 21, 2005 and its subsequent modifications.
• The Regulation of Payment Services, Electronic Payment Instruments, Compensation and Settlement, approved by the Highest Authority of the BCB through Board Resolution No. 137/2019, of October 8, 2019 and its subsequent modification.
• The Regulation of the Deferred Settlement Module of the Integrated Payments Settlement System, approved by the Highest Authority of the BCB through Board Resolution No. 078/2020, of August 25, 2020.
• The Regulation of the Integrated Payments Settlement System, approved by the Highest Authority of the BCB through Board Resolution No. 141/2020, of December 8, 2020.
• The International Standards on Combating Money Laundering, Terrorist Financing, and Proliferation Financing Issued by the Financial Action Task Force of Latin America (GAFILAT).
• The Technical Report BCB-GEF-SSPSF-DVSP-INF-2014-35 of May 2, 2014, issued by the Financial Entities Management (GEF).
• The Legal Report BCB-GAL-SANO-INF-2014-149 of May 6, 2014, issued by the Legal Affairs Management (GAL).

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• Board Resolution No. 044/2014 of May 6, 2014, approved by the Highest Authority of the Central Bank of Bolivia (BCB).
• The note ASFI/DNP/R-117762/2020 of September 29, 2020, issued by the Financial System Supervisory Authority (ASFI).
• The note UIF/DAES/UAEC/176/2020 of October 14, 2020, issued by the Financial Investigations Unit (UIF).
• The note MEF P/VPSF/DGSF/UPSF/N°179/2020 of November 4, 2020, issued by the Ministry of Economy and Public Finance (MEFP).
• The Technical Report BCB-GEF-SSPSF-DVSP-INF-2020-50 of December 10, 2020, issued by the GEF.
• The Legal Report BCB-GAL-SANO-DLBCI-INF-2020-135 of December 11, 2020, from the GAL.

CONSIDERING I

REGARDING THE NATURE OF THE CENTRAL BANK OF BOLIVIA

That articles 326.I, 327 and 328 of the Political Constitution of the State determine that the Executive Branch establishes the objectives of the country's monetary and exchange policy in coordination with the BCB, which constitutes a public law institution, which within the framework of the State's economic policy, has the function of maintaining the stability of the internal purchasing power of the currency, for which reason it has the attributes to determine and execute monetary policy, execute exchange policy, regulate the payments system, authorize the issuance of currency and administer international reserves.

That articles 1, 2, 3 and 4 of Law No. 1670 establish that the BCB is an institution of the Executive Branch, of public law, of an autarkic nature, with its own legal personality, constituted as the sole monetary and exchange authority of the country, with specialized normative faculties of general application, which has the object of seeking the stability of the internal purchasing power of the national currency, for which it formulates policies of general application in monetary, exchange and payments system matters, taking into account the Government's economic policy.

That articles 2, 3, 5 and 6 of the BCB Statute establish that the Issuing Entity is an institution of the State, of public law, of an autarkic nature, with its own legal personality, which has the object of seeking the stability of the internal purchasing power of the national currency subject to the law and for which it has normative competence to issue specialized norms and technical competence to formulate policies and apply instruments that allow it to fulfill its object.

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CONSIDERING II

REGARDING THE REGULATION OF THE PAYMENTS SYSTEM

That article 328.1 of the Political Constitution of the State determines that the BCB has the attribute to regulate the payments system.

That article 54.b) of Law No. 1670 and article 11.13 of the BCB Statute establish that the BCB Board has the attribute to regulate the administration of payments systems among authorized financial entities and approve norms for their operation.

That article 8.III of Law No. 393 establishes that the ASFI must issue specific regulation and supervise its compliance within the framework of the norms issued by the BCB, in the scope of the payments system.

That article 11, numeral 13) of the BCB Statute determines that the Board has the attribute to approve the norms for the operation of the payments system.

That articles 1 and 2 of the Regulation of the Integrated Payments Settlement System LIP establish that this norm has the object of regulating the operation and operability of the Integrated Payments Settlement System (LIP) and establishing the rights, obligations and responsibilities of its administrator, its participants and its query users, which constitute its scope of application.

That articles 1 and 2 of the Regulation of Payment Services, Electronic Payment Instruments, Compensation and Settlement establish that this norm has the object of regulating, within the scope of the national payments system, the services and Electronic Payment Instruments and the compensation and settlement derived from these instruments; establishing the general framework for the creation, constitution and operation of Compensation and Settlement Chambers and payment service companies; and regulating the surveillance and supervision activities of the national payments system, which applies to its participants.

That article 3.h), oo) and xx) of the Regulation of Payment Services, Electronic Payment Instruments, Compensation and Settlement defines Electronic Payment Channels as the devices (automated teller machines-ATM, point of sale terminals-POS) or communication networks (internet, fixed or mobile telephony) that allow processing Payment Orders originated with Electronic Payment Instruments; Electronic Payment Instrument as the device and electronic document that can be used physically or virtually and allows the holder and/or user to originate Payment Orders and/or make queries associated with the instrument; and Payment Order as the instruction or message by which the originator requests the assignment and/or transfer of funds through the use of Electronic Payment Instruments, in favor of a beneficiary, respectively.

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That article 23 of the Regulation of Payment Services, Electronic Payment Instruments, Compensation and Settlement establishes that Payment Orders have full probative value and the same legal and judicial effects as physical files and records.

That articles 1 and 2 of the Regulation of the Deferred Settlement Module of the Integrated Payments Settlement System establish that this norm has the object of regulating the operation, operability, the compensation and settlement processes derived from the processing of EPOs in the Deferred Settlement Module of the LIP System as well as establishing the rights, obligations and responsibilities of its administrator and its participants.

CONSIDERING III

REGARDING LEGAL AND MANDATORY CURRENCY, AND THE EXCHANGE REGIME

That articles 326.II and 328.4 of the Political Constitution of the State determine that public transactions in the country must be carried out in national currency, the authorization of which is an attribute of the BCB.

That articles 1, 3, 6 and 9 of Law No. 901 establish the creation of the Boliviano as the unit of the monetary system of the Republic, through banknotes and coins that the BCB in its capacity as sole issuer, will issue and circulate with the quality of legal and mandatory currency, which will have unlimited discharge power for all kinds of public and private obligations and will serve to express all legal acts, their records and other data concerning the monetary unit of the country.

That articles 10, 11 and 54.m) of Law No. 1670 establish that the BCB exercises in an exclusive and non-delegable manner the function of issuing the monetary unit of Bolivia, which is the "Boliviano" in the form of banknotes and metallic coins, which are means of payment of legal course throughout the territory, with unlimited discharge power and whose authorization and supervision of printing, issuance and minting are attributes of the Board of the Issuing Entity.

That article 19 of Law No. 1670 establishes that the BCB establishes the exchange regime and executes exchange policy, regulating the conversion of the Boliviano in relation to the currencies of other countries and the procedures to determine the exchange rates of the national currency.

That article 11.11) and 12) of the BCB Statute establishes that the Board has the attributes to approve the printing, issuance and destruction of Boliviano banknotes and coins and to determine the exchange regime and exchange policy.

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That article 40 of the Regulation of the Integrated Payments Settlement System, establishes that payment orders through the LIP System can be made in Bolivianos and United States Dollars.

CONSIDERING IV

REGARDING THE REGULATION OF THE FINANCIAL SYSTEM

That articles 331 and 332 of the Political Constitution of the State determine that financial intermediation activities, the provision of financial services and any other activity related to the handling, use and investment of savings, are of public interest and can only be exercised with prior authorization of the State, since financial entities must be regulated and supervised by a bank and financial entity regulation institution.

That article 30 of Law No. 1670 establishes that all entities of the financial intermediation and financial services system are subject to the normative competence of the Superintendence of Banks and Financial Entities (current ASFI).

That article 8.I and II of Law No. 393 establishes that financial entities are regulated, supervised and controlled by the ASFI.

CONSIDERING V

REGARDING BLOCKCHAIN TECHNOLOGY AND CRYPTOASSETS

That Blockchain or distributed ledger technology is defined as the technology on which the validation and recording processes of cryptoasset transactions are based. It is a shared database or a distributed transaction ledger among all participants that make up the corresponding network.

That for the purposes of this Board Resolution, cryptoassets are understood as digital units that meet without exception the following characteristics: they are issued by private agents, electronically, with universal accessibility, the transfer is carried out through a decentralized mechanism, and they are not linked to the operation of Electronic Payment Instruments authorized by the BCB.

CONSIDERING VI

REGARDING THE APPROVAL OF BOARD RESOLUTION NO. 044/2014

That articles 44 and 54.a) of Law No. 1670 establish that the highest authority of the BCB is its Board of Directors, which is responsible for defining its policies, specialized norms of general application and internal norms; and has the attribute to issue norms and adopt general decisions.

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That articles 7, 11.1) and 2), 26 and 27 of the BCB Statute establish that the BCB Board has the attributes to define policies and issue specialized norms of general application which will be approved through motivated and justified Board Resolutions by a technical report from the Management or Managements to whom the matter corresponds and by a report from the Legal Affairs Management.

That the GEF through Technical Report BCB-GEF-SSPSF-DVSP-INF-2014-35, concluded that due to the characteristics of Bitcoin its use cannot be regulated or standardized, since there is no responsible entity for its issuance and/or in charge of its operation. Likewise, it establishes that the risks of the use of Bitcoin could materialize in losses for economic agents, damage to public perception regarding electronic payment instruments that are regulated and could serve as a means for the legitimization of illicit gains, since it points out that through Board Resolution the use of currencies not issued or regulated by states, countries or economic zones, and monetary denominations not authorized by the BCB in the scope of the national payments system is prohibited.

That the GAL through Legal Report BCB-GAL-SANO-INF-2014-149, concluded that the issuance of specialized normative of general application referring to the prohibition of the use of currencies not issued or regulated by states, countries or economic zones and electronic payment orders and monetary denominations not authorized by the BCB in the scope of the national payments system is legally procedent.

That the Highest Authority of the BCB through Board Resolution No. 044/2014 determines to prohibit the use of currencies not issued or regulated by states, countries or economic zones and of electronic payment orders and monetary denominations not authorized by the BCB in the scope of the national payments system.

CONSIDERING VII

REGARDING THE PREVENTION AND MITIGATION OF RISKS DERIVED FROM VIRTUAL ASSETS AND THE POSITION OF THE ASFI, THE UIF AND THE MEFP ON THE REPEAL OF BOARD RESOLUTION NO. 044/2014

That article 23 of the Regulation of the Deferred Settlement Module of the Integrated Payments Settlement System, establishes that participating entities must comply with the "Know Your Customer" policy, regarding the holder, as well as "Due Diligence" procedures and other provisions issued by the UIF.

That Recommendation 15 of the International Standards of GAFILAT establishes regarding new technologies, that countries and financial institutions must identify and evaluate money laundering or terrorist financing risks that could arise with respect to the development of new products and new commercial practices

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including new sending mechanisms, and the use of new technologies or technologies in development for both new and existing products.

That Recommendation 15 of the International Standards of GAFILAT establishes that to manage and mitigate the risks arising from virtual assets, countries must ensure that virtual asset service providers are regulated for anti-money laundering and counter-terrorist financing purposes, and have a license or registration and are subject to effective monitoring systems and ensure compliance with the relevant measures required in the FATF Recommendations. (Recommendation 15)

That the ASFI through Note ASFI/DNP/R-117762/2020 establishes that the repeal of Board Resolution No. 044/2014, could promote a substantial increase in the use of cryptoassets in national territory and would increase risks in matters of legitimization of illicit gains, terrorist financing and/or predicate crimes, as well as cybersecurity and financial consumer protection.

That the UIF through Note UIF/DAES/UAEC/176/2020 establishes that the country must have adequate regulation on virtual assets, not only to comply with the requirements of the International Standards, but also for the latent risks to which the country and the world are exposed, since these virtual assets can be exchanged for cash or other virtual currencies to be used to legitimize illicit gains, due to their characteristics of anonymity and lack of a central control body where the source is difficult to identify, therefore it suggests maintaining the validity of Board Resolution No. 044/2014.

That the MEFP through note MEF P/VPSF/DGSF/UPSF/N°179/2020 establishes that the repeal of Board Resolution No. 044/2014 is not considered pertinent and that the BCB within the framework of article 328 of the Political Constitution of the State must issue regulation for cryptoassets.

CONSIDERING VIII

REGARDING THE TECHNICAL AND LEGAL ANALYSIS

That the GEF through Technical Report BCB-GEF-SSPSF-DVSP-INF-2020-50, establishes that: "(...) in the scope of the national payments system, cryptoassets are defined as digital units that meet without exception the following characteristics: they are issued by private agents, electronically, with universal accessibility, the transfer is carried out through a decentralized mechanism, and they are not linked to the operation of Electronic Payment Instruments authorized by the BCB.", and concludes that: "Cryptoassets lack the essential attributes of money and respond to the characteristics of speculative assets. (...) Internationally, there is no consensus on the type of regulation that should be applied to cryptoassets and there are significant differences in the approaches being addressed in different countries. (...) Nevertheless, a common definition is that cryptoassets currently do not form part of payment systems, since their

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role as a means of payment is questionable and is restricted in different jurisdictions. (...) On the other hand, central banks have perceived advantages in the development and implementation of these new technologies and in this context the feasibility of implementing CBDCs in different countries, including our country, is analyzed, so the norm must specify its scope in order not to limit the development of technology. (...) In this context, there is a need to leave without effect B.R. No. 044/2014 and issue a new Board Resolution that introduces and limits the scope of the term "cryptoasset" and establishes that the so-called cryptoassets do not form part of the national payments system as they are not legal tender, therefore they cannot be used as a means of payment nor be commercialized by financial entities, nor can they be subjects or be linked to buy-sell operations of cryptoassets through electronic payment channels. (...)".

That the GAL through Legal Report BCB-GAL-SANO-DLBCI-INF-2020-135, concludes the following: "a) The BCB within the framework of the legal order, as well as its constitutional and legal attributes, has approved Board Resolution No. 044/2014, through which it prohibits the use of currencies not issued or regulated by States, countries or economic zones and of electronic payment orders and monetary denominations not authorized by the Issuing Entity in the scope of the national payments system; b) To date, it is evident that Board Resolution No. 044/2014 is out of context with respect to the dynamics and evolution of cryptoassets, and does not contemplate adequate justification and motivation for the current reality regarding the use of these digital assets, since the BCB requires issuing a more suitable regulatory instrument and c) The GAL considers that Board Resolution No. 044/2014 should be repealed and updated regulation should be issued to regulate the relationship between the payments system and cryptoassets through the approval of a new Board Resolution duly justified and motivated in strict observance of the legal order and the suggestions of the MEFP, the ASFI and the UIF."

CONSIDERING IX

REGARDING THE ANALYSIS OF THE REGULATION AND BACKGROUND

That from the legal analysis of the regulation and the background exposed in the preceding considerations, the following is obtained:

a) Board Resolution No. 044/2014, has been issued by the BCB under the shelter of its attributes provided for in the Political Constitution of the State and Law No. 1670 to regulate the payments system. Said Resolution is currently outdated, with incomplete justification and motivation in the current context.

b) Regarding the possibility of repealing Board Resolution No. 044/2014, it is noted that the ASFI in its note ASFI/DNP/R-117762/2020, the UIF in its note UIF/DAES/UAEC/176/2020 and the MEFP in its note MEF P/VPSF/DGSF/UPSF/N°179/2020, point out that the repeal of said Resolution: i) could promote a substantial increase in the use of cryptoassets in national territory and would increase risks in matters of legitimization of illicit gains,

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terrorist financing and/or predicate crimes, as well as cybersecurity and financial consumer protection; ii) the country must have adequate regulation on virtual assets, not only to comply with the requirements of the International Standards, but also for the latent risks to which the country and the world are exposed, since these virtual assets can be exchanged for cash or other virtual currencies to be used to legitimize illicit gains, due to their characteristics of anonymity and lack of a central control body where the source is difficult to identify, therefore it suggests maintaining the validity of said Resolution; and iii) the repeal of Board Resolution No. 044/2014 is not considered pertinent and that the BCB within the framework of article 328 of the Political Constitution of the State must issue regulation for cryptoassets.

c) According to the technical and legal criteria exposed by the GEF in its Technical Report BCB-GEF-SSPSF-DVSP-INF-2020-50 and by the GAL in its Legal Report BCB-GAL-SANO-DLBCI-INF-2020-135, it corresponds to repeal Board Resolution No. 044/2014 and issue updated regulation to regulate the relationship between the payments system and cryptoassets through the approval of a Board Resolution duly justified and motivated in strict observance of the legal order and the suggestions of the MEFP, the ASFI and the UIF.

d) Within the framework of the provisions contained in the Political Constitution of the State, Law No. 901, Law No. 1670 and Law No. 393, the BCB in its capacity as monetary authority and issuer of the legal currency in force in the country, has the attribute to regulate the payments system, with faculties to approve norms for its operation.

That in consideration of what has been stated, it is established that the Highest Authority of the Institution under the shelter of what is provided for in letters a) and b) of article 54 of Law No. 1670 and numerals 1) and 13) of article 11 of the BCB Statute, has attributes to approve general decisions and issue the norms that are necessary for the BCB to fulfill the functions, competencies and faculties assigned to it by the Law, as well as to approve the norms for the operation of the payments system.

THEREFORE,

THE BOARD OF DIRECTORS OF THE CENTRAL BANK OF BOLIVIA

RESOLVES:

Article 1. In the framework of the attributes conferred to the Central Bank of Bolivia (BCB) by the Political Constitution of the State, Law No. 901, Law No. 1670 and Law No. 393, to authorize the issuance of currency and regulate the system