Panama - A cool-headed, crypto bill is almost law in one of Latin America’s key financial centers
In contrast to Central American rival El Salvador, Panamanian lawmaker Gabriel Silva’s crypto law is about more than just Bitcoin
Last week we learned that Panama’s congress passed a new law to regulate crypto.
Lawmaker Gabriel Silva’s proposal appears to stem from a long, thoughtful legislative process that views crypto as an asset - not legal tender. The lawmaker’s cautious approach stands in stark contrast to El Salvador president Nayib Bukele’s sudden Bitcoin legalization, which makes it legal tender.
Silva’s proposed law will lay out regulations for all types of crypto assets, including NFTs. The intention here is to position Panama, already a key financial center for Latin American business and finance, as a lead crypto jurisdiction. So far, it looks like Panama is edging closer to becoming a Gibraltar than an El Salvador.
President Laurentino Cortizo now needs to approve the bill. If the president vetoes features of the bill, it will be returned to congress where lawmakers are forced to make adjustments. Silva has at times clashed with Cortizo over policy-making. That said, it seems that Silva is confident that it will pass without veto.
Assuming Cortizo grants his approval, there will be regulations for trading, digital securities (e.g. DeFi protocols) and rules for tokenizing precious metals. The precious metals tokenization is especially interesting since the world is facing an increase in commodities prices. Latin America is rich in metals that will be involved in cleaner burning technologies as the world moves to decarbonize. Panama is evaluating a copper mining project at the moment.
For more conservative companies and investors interested in basing their operations in Latin America, it seems that Panama’s crypto jurisdiction could win some market share from El Salvador and other jurisdictions where putting together a policy regime is moving at a snail’s pace - like Colombia.
The law is more likely to survive an electoral transition than in El Salvador, where Bitcoin legalization is almost synonymous with his Nuevas Ideas Party and a controversial presidential persona. There is also the benefit that Panama’s legal framework is perceived as more stable for investors.
But Panama’s legislation comes with a few constraints. Other jurisdictions, like the European Union, have already labeled Panama as a tax haven in need of upping transparency. They want regulations that avoid alternative and perhaps opaque payment rails. Some might see this law moving in the opposite direction of that request.
Another limitation is that the law appears to have little to do with digital asset miners. That makes some sense. Panama’s law is thought out from its role as a financial center, not a resource-rich geography. Panama is not throbbing with hydro power like Colombia or Brazil.
It is still early and we need to see how investors and companies react to the law’s regulations. It is possible that the country’s tax haven status counters the benefits that the crypto asset law proposes. El Salvador’s Bitcoin policy experiment, however, appears to be flailing. A set of securities laws and a volcano bond issuance both due in March are quite late. Bukele’s tardiness could be good news for Panamanian bankers.