Governing Crypto Currencies-Regulations around the World

In Backgrounder
November 21, 2021
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An intriguing question at this stage is perhaps is crypto currency actually digital currency? Now let us explore the answer to this question in this article. It must be highlighted here that many countries refuse to actually refer to crypto or digital currency as ‘currency’ for that matter.Their stance is that it is a commodity

An intriguing question at this stage is perhaps is crypto currency actually digital currency? Now let us explore the answer to this question in this article. It must be highlighted here that many countries refuse to actually refer to crypto or digital currency as ‘currency’ for that matter.Their stance is that it is a commodity just like gold; its decentralized and this lack of backing by any government or institution deprives crypto from the status of a currency.As this matter is unclear we may refer to crypto as digital currency for the time being and for the purposes of this article.For Crypto enthusiasts this decentralized nature of digital currency is a big drawback but legal regulations that have already undertaken and further those that are set to undertake can help protect the investors.

United States

Recent changes in the US legislation propose that crypto currency is legal in the country. Though the Biden administration is pushing for more stringent checks to the crypto regulations. In fact, recently, Security and exchange commission (SEC) Chairman Gary Genster has expressed concern over the lack of Crypto regulation. Such concerns are valid in the light of events like the ‘Colonial Pipeline’ cyber attack that happened in May this year where hackers demanded Bitcoin ransoms. Bitcoin is one of the branches of crypto and is becoming globally popular. So, the government is proposing new legislation to control money laundering and other scams associated with crypto. A new legislation is set to undertake in the 2024 tax season in the US. Accordingly, Companies that facilitate crypto traders would be required to report tax information about those traders to the IRS (Internal Revenue Service). Under the current system all crypto exchanges in the US must register with the Financial Crimes Enforcement Network (Fin CEN).

China

China on the other hand shows a total reluctance to the use of crypto as digital currency. While following the legislation in place after 2017 it is not difficult to analyse that the Chinese government has embarked on a mission to make criminally liable any Chinese citizen involved in crypto currency. On the 4^th of September 2017,7 major government agencies of China including the People’s Bank of China jointly banned all ICO(initial coin offerings).The Chinese Criminal laws have a long reach and so of a Chinese citizen relocates in a crypto friendly jurisdiction, it is no doubt that he will be punished according to the Chinese criminal laws.

China’s reluctance to recognize crypto currency as currency comes from the exponential economic growth that the country has seen over the past 20 years. This growth can be linked to the strict legal and administrative checks governing its citizens. Every Chinese citizen is supposed to comply with the policies set forth and it is this discipline which has taken china unilaterally towards a flourishing economy. In such a situation the government shows no leniency towards scams of any kind especially the money related scams that may disturb the economic equilibrium set in place. Crypto associate frauds like money laundering are hence seen as economy crippling agents by the Chinese government.

However, it would be incorrect to say that holding Bitcoins in China is illegal. No law in China prohibits crypto. The distinction to be noted here is that between currency and ‘commodity’. Chinese laws refuse to recognise Bitcoins as currency. Rather they are recognised as a commodity in China. Article 127 of the General Rules of the Civil Law of China hints towards crypto currency as ‘a virtual property’-a commodity.

India

India’s attitude to crypto currency is in similar lines to that of China, the only major differences that can be spotted are two. Firstly, Indian laws are not as harsh as China when it comes to the operation of crypto as a currency in India. Secondly this has helped crypto gain a ground as an exciting new money handling option in this country unlike China where public response to crypto is still slow and isolated. While talking about the similarity in attitude of India and China to crypto both have regarded it as an asset or a mere commodity.

At present there is no law in India that allows or prohibits trading in crypto. However, when crypto currency was newly introduced in India we did see some reluctance by the legal systems in place to welcome it as the new currency in place. This was probably because the government saw it as an unstable currency which wasn’t controlled by any institution or banking system. Infect till date the central bank of India has not issued it as a legal tender. According to a 2018 Supreme Court of India decision (India v RBI) banks were prohibited from facilitating the use of crypto currency. However, with the changing times the legal mechanisms in place in India are showing a more flexible approach towards the use of crypto. This can be seen from the fact that this 2018 judgment itself was quashed by the Honourable Supreme Court of India. And this has created grounds for several crypto market exchanges. Some other commonwealth states like Australia and Canada are already holding meetings to mutually develop their legal stance towards crypto.

The future of crypto is uncertain owing to the absence of any regulations by a banking system. Though it is still far from unknown. If proper mechanisms are set like the provision of regulatory bodies working specially to overlook crypto, this may become the new currency of the coming times. Countries like the US are already working on introducing new crypto related laws and regulations. However, if crypto remains prone to frauds and instability then at this stage not much can be said about its status as the future currency.