By investing 1% of its treasury reserves in crypto, the Brazilian city of Rio de Janeiro seeks to become a global crypto hub and lessen locals' distrust towards cryptocurrencies, Rio de Janeiro's secretary of economic development, Chicão Bulhões, told CoinDesk TV on Thursday.
"We know that [bitcoin] is volatile, that some people criticize us for that, but it is the future, and Rio wants to be a reference for the world as a cryptocurrency-friendly city, like Miami or Zug in Switzerland," Bulhões said.
According to Bulhões, locals are wary of cryptocurrencies, especially after police cracked down on an alleged financial pyramid scheme involving crypto assets, that took place in Cabo Frio and other cities near Rio de Janeiro.
"This shocked a little bit the credibility of crypto around the population, which is not used to this matter," Bulhões said, adding that the city is home to several crypto companies, including crypto asset managers Hashdex and Transfero.
According to Bulhões, the treasury announcement generated great enthusiasm among locals. "Suddenly, the city was just really excited about this matter. All the press here in Brazil and Latin America wanted to know more and understand what the city was doing. Also, it got people the feeling that Rio de Janeiro was back," he said.
The use of crypto can help locals hedge against inflation, Bulhões said, adding that, despite its volatility, the deflationary nature of some digital assets can be beneficial amid rising prices and play an important role to reduce inequality in the country.
"The last four years have been difficult for Brazil with inflation. And we know that some cryptocurrencies are deflationary and can be used for people not to lose purchasing power. That got people interested in the possibility of having an alternative to central banks, and having more possibilities to fight inequality," he said.
According to Bulhões, Rio de Janeiro’s move to lean into crypto was inspired more by Miami’s example than that of El Salvador, which became the first country to make bitcoin legal tender last year.
“We believe we are similar to Miami, we have the beaches, a good place to live, the creativity," Bulhões said.
On Jan. 14, Eduardo Paes, Rio’s mayor, announced the city’s plans to allocate 1% of Brazil's second-most populous city's treasury reserves to cryptocurrencies. The city also plans to release its own cryptocurrency, Crypto Rio, and create a special area with tax incentives to attract technology companies.
In addition, the city plans to apply discounts to tax payments made with bitcoin, Rio de Janeiro's finance secretary Pedro Paulo said in January, adding that the administration needs to study the legal framework.
Rio de Janeiro’s government has also created a working group to propose actions related to the development of crypto in the city. It plans to release the results of the group in the next three months.