Uruguay Warned Its Cannabis Sector Could Choose To Bank With Bitcoin

Josh O'Neill

14 August 2017

A former president of Uruguay's National Drugs Board has warned that the country's banks must ease access to financial services for players operating legitimately in the cannabis industry, otherwise they will turn to bitcoin.

Leonardo Costa urged the Banco Republica Del Uruguay to be “more proactive” in providing financial services to the cannabis sector in order to curb the risk of fiat money being converted into crypto-currencies like bitcoin.

“Bitcoin is a way of circumventing these problems that, in some countries, are being the alternative for cannabis businesses, or businesses of this type,” Costa said.

Much like in the US, Uruguay's legitimate marijuana industry has struggled to gain access to banking and financial services because of controversy surrounding the drug. In Uruguay, however, cannabis is fully legal, whereas in the US this is the case in just eight states.

Costa has voiced concerns that if BROU fails to offer financial services to cannabis-related firms, the industry will be forced to adopt bitcoin, or an equivalent, as its primary medium of circulation. As the crypto-currency is decentralized and unregulated in Uruguay, this could see the cannabis industry's kosher cash fall into the hands of criminals or even stolen in the event of a hack.

“There are banks that, by disposition of their parent companies, have decided based on a risk analysis, not to work with those substances or businesses that work with those substances,” Costa said.

He outlined his roadmap for ensuring financial inclusion for the cannabis industry.

“First, that the banking supervisor gives him some legal framework, no doubt,” Costa said. “Without that, it is very difficult. Second, there are banks that, like the Republic Bank, must assume their national banking role... if none of that happens, this will end in bitcoins. No doubt about it.”

Like most crypto-currencies, bitcoin was spawned out of distrust for banks and an incline for deregulation.

Since its inception in 2009, when a single bitcoin would have set you back just a few cents, bitcoin has gathered unprecedented momentum.

On this day last year, one bitcoin cost around $570, according to CoinDesk.com. Now, the price of a bitcoin is $4,224.75 . That's a growth rate of more than 640 per cent over the course of a year – scale unrivalled by the vast majority of asset classes.