Legalizing Cryptocurrencies in the Financial Ecosystem: A Global Outlook
Cryptocurrency has become a new hype in the financial market all around the world. From some countries taking a stringent view of banning it to some countries legalizing the cryptocurrencies as legal tenders, the future of cryptocurrencies has not been ascertained till now even after it has been in use for a long time. In November 2021, the Library of Congress did a review on the position of countries on cryptocurrencies and it found that 103 countries have directed their financial regulatory agencies to develop regulations for financial institutions in regard to cryptocurrencies.1 Further, it found out that there are 42 countries that have certain restrictions and impediments on the use of cryptocurrencies in their economy while 9 countries have absolutely banned its usage.2 However, it is true that countries are somehow liberalizing their approach towards cryptocurrencies and are trying to incorporate them or at least are trying to regulate their functioning in their economies. The position of cryptocurrencies in some of the countries is mentioned below-
Cryptocurrency is fully banned in China by the People’s Bank of China. Crypto mining, crypto dealing, and all other related aspects of cryptocurrency are completely prohibited. China did the same in order to control and restrain financial crimes and economic instability. The country is of the view that cryptocurrencies do not have any legal tender status and should not be permitted to be circulated as currency in the open market. If this format of currencies is allowed or given legal recognition, there is a high probability that these currencies are used in the offence of money laundering, illegal fund-raising, fraud, and other criminal activities.3 Hence, China has taken a clear and strict view in this regard.
In the UK, cryptocurrencies are presently not banned and are unregulated as they are not covered under the regulatory perimeter of UK Banking laws. First, in 2020, the UK took a stand and confirmed that crypto-assets are property but cannot be termed as money as they lack classical definitional characteristics. In March 2021, the UK has also published a Crypto-assets Manual that contains guidance on tax liabilities associated with cryptocurrencies.4 However, the Bank of London has now started drawing out a regulatory framework to deal with crypto-assets. This move has been taken in light of the current Russia-Ukraine war as the UK is concerned that this form of currency may be used in creating financial instability in the country if left unregulated. Presently, till the time a framework is not sketched, the Bank of England is trying to ensure that the level of risk is measured and remains controlled.5 Nonetheless, recently the UK has banned Binance Markets (one of the world’s largest cryptocurrency exchanges) from conducting any sort of regulated activities as this company has been alleged to be involved in money laundering activities.6
Ukraine as a country has been seen as crypto-friendly.7 Ukraine has also decided to establish a legal framework for cryptocurrencies that can be operated in the country’s regulated economic markets. Parliament of Ukraine has already passed a law to legalize cryptocurrency in February 2022 and by now President’s signature, the same has been legalized. This law would provide legal status, classification, ownership, and regulation of virtual assets including registration of cryptocurrency providers. This market will be regulated by Ukraine’s National Securities and Stock Market Commission. The whole prompt action of legalizing cryptocurrency is a reaction to the Ukraine-Russia war. Currently, Ukraine has also seen using cryptocurrencies in funding its military fight against Russia. This form of currency has helped the Ukraine government to raise millions of dollars to fund its fight against the Russian front. It is estimated that more than 100 million dollars have been received by Ukraine in form of donations through cryptocurrencies to aid them in war.
El Salvador, a country in Central America, has made Bitcoin cryptocurrency a legal tender. It means that any economic agent in El Salvador would be bound to accept Bitcoin as a mode of payment wherever and whenever it is offered. So, for purchase and sale at a ration shop, Bitcoin is a legal currency that no one can deny to accept. Moreover, the country also incentivized using Bitcoin in a fashion that any person who switches to Bitcoin would receive a one-time $30 equivalent Bitcoin currency in their wallets named Chivo. According to sources, the government of El Salvador has budgeted 203 million dollars in public money to encourage and support the usage of Bitcoin in their country.8 International Monetary Fund has requested El Salvador to take back its decision of legalizing Bitcoin as it causes a financial risk to the country along with challenges to financial integrity and consumer protection.9
India’s relationship with Cryptocurrency has remained like Fire and Ice where there has been no certainty. In the year 2018, the Reserve Bank of India banned cryptocurrencies through a circular; however, the Supreme Court of India through its three-judge bench in the year 2020 has turned down the decision by stating that such a circular has no validity.10 Since then, consumers, as well as the regulators, have asked for a stricter framework related to cryptocurrencies in India. The government of India is in favour of having an official digital currency but is totally against the private crypto market. The crypto market in India has grown 641% between July 2020 and June 2021.11 Finally, the Indian government is now working on a cryptocurrency law by framing a legislative Bill in order to regulate its usage and to have a proper framework for the creation of an official digital currency issued by RBI. According to the information available on the Lok Sabha website, the Bill “allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses”12 More recent, the Finance Minister while presenting the Union Budget 2022 has made clear that cryptocurrency assets will not be taxed from 1st of April 2022. It has been announced that “any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent”.13 So, the gain on sale of cryptocurrency assets would be taxed at this flat rate. The only deduction allowed is the cost of acquisition of cryptocurrency.
A global and unified approach is recommended to deal with cryptocurrencies. Different nations having different laws regarding cryptocurrencies would only complicate the financial dealing and severe the ecosystem of the world. A resolution on how to go forward with cryptocurrencies can be a path ahead. In the meantime, there should not be a complete ban on cryptocurrencies seeing the rising trend as it may cause a lot of hardship and loss to consumers who have invested their money in these currencies. However, a traced and controlled dealing of cryptocurrencies can be done in order to mitigate the risk of financial and economic crimes.