Explained: How are cryptocurrencies regulated in countries around the world?
The Cryptocurrency and Official Digital Currency Regulation Bill, 2021, which is expected to be introduced during the winter session of Parliament from November 29, aims to “create a framework that facilitates the creation of the official digital currency to be issued by the Reserve Bank of India ”.
The bill “seeks to ban all private cryptocurrencies in India, however, it allows certain exceptions to promote the underlying technology of the cryptocurrency and its uses.”
Cryptocurrency prices on local exchanges collapsed overnight after the news broke, even though they remained largely unchanged in global markets.
Industry sources said there had been panic selling from crypto holders fearing an impending ban or restriction. There is currently no regulation or ban on cryptocurrencies in India; however, national responses to the definition and regulation of virtual currencies vary widely in jurisdictions around the world.
How are cryptocurrencies regulated in countries around the world?
The position of countries and regulators ranges from a total ban on these financial assets, to allowing them to operate with certain regulations, to the other extreme of allowing virtual currency trading in the absence of guidelines.
Governments and regulators remain divided over how to classify it as a currency or an asset – and how to control it from an operational standpoint. The evolution of the policy and regulatory response has been unusually jarring, with no apparent coordination in country responses.
As noted above, the regulatory and policy response can vary from a total openness like that seen in countries like El Salvador, which has approved bitcoin as legal tender, to a total crackdown like in China, which has imposed regulations. strict on cryptocurrencies and service. suppliers.
Countries like India fall somewhere in between – still figuring out how best to regulate cryptos after some policy and regulatory experimentation. The United States and the European Union have been proactive in trying to define the regulatory mandate, as discussions continue.
Among the countries that have not issued detailed regulations, there are those that have recognized and defined these currencies.
CANADA for example, through its Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, defines virtual currency as:
(a) a digital representation of value which can be used for payment or investment purposes which is not fiat currency and which can be easily exchanged for funds or another virtual currency which can be easily exchanged against funds; Where
(b) a private key of a cryptographic system which allows a person or entity to have access to a digital representation of the value referred to in paragraph (a).
A Thomson Reuters Institute report in June this year noted that Canada was among the early adopters of crypto, and the Canada Revenue Authority (CRA) generally treats cryptocurrency as a commodity for the purposes of crypto. Income tax law of the country.
ISRAEL, in its law on the supervision of financial services, includes virtual currencies in the definition of financial assets. Israel’s securities regulator has ruled cryptocurrency as a matter of security, while Israel’s tax administration defines cryptocurrency as an asset and requires 25% on capital gains.
IN GERMANY, the Financial Supervisory Authority qualifies virtual currencies as “units of account” and therefore “financial instruments”. The Bundesbank considers Bitcoin to be a crypto token since it does not perform the typical functions of a currency. However, citizens and legal entities can buy or trade cryptoassets as long as they do so through exchanges and custodians approved by the German Federal Financial Supervisory Authority.
UK, Her Majesty’s Revenue & Customs, while not viewing crypto assets as currency or money, notes that cryptocurrencies have a unique identity and therefore cannot be directly compared to any other form of activity in the world. investment or payment mechanism.
In the USA, different states have different definitions and regulations for cryptocurrencies. Although the federal government does not recognize cryptocurrencies as legal tender, definitions issued by states recognize the decentralized nature of virtual currencies.
IN THAILAND, digital asset companies are required to apply for a license, monitor unfair trading practices and are considered “financial institutions” for anti-money laundering and other purposes, according to Thomson Reuters report Institute. Earlier this month, Thailand’s oldest lender, Siam Commercial Bank, announced plans to buy a 51% stake in local cryptocurrency exchange Bitkub Online.
While most of these countries do not recognize cryptocurrencies as legal tender, they do recognize the value these digital units represent – and indicate their functions as a medium of exchange, unit of account, or store of value (any asset). which would normally retain purchasing power in the future).
Like India, several other countries have decided to launch a digital currency backed by their central bank.
How would a central bank digital currency (CBDC) work?
The Reserve Bank of India plans to launch its CBDC, a digital form of fiat currency that can be traded using blockchain-backed wallets and is regulated by the central bank. Although the concept of CBDCs was directly inspired by Bitcoin, it is different from decentralized virtual currencies and crypto assets, which are not issued by the state and do not have the status of “legal tender” declared by the government. .
CBDCs allow the user to perform domestic and cross-border transactions that do not require a third party or bank. Since several countries are carrying out pilot projects in this space, it is important that India launches its own CBDC, making the rupee competitive in international financial markets.
Although CBDC is also a digital or virtual currency, it is not comparable to the private virtual currencies that have mushroomed over the past decade. Private virtual currencies are at odds with the historical concept of money – and they are certainly not a currency in the sense the word has come to be understood historically.
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