Governments around the world are responding to digital currencies in a variety of ways—some are looking to take cryptocurrency mainstream while others have banned it altogether.
Bearing in mind that everything crypto changes quickly and often, here are some examples of government responses at the time of writing.
Australia
Trading in cryptocurrencies is legal in Australia, but they are considered to be property rather than legal tender.
How you use them affects their treatment under taxation law. For example, cryptocurrencies may be subject to capital gains tax (CGT) if acquired for investment purposes, but tax-exempt if used to buy goods (under $10,000 in value) for personal use. When a digital currency is used in a business, it is treated as part of ordinary revenue and expenses and is subject to the same tax rulings, including for GST.
As cryptocurrency exchange platforms are not highly regulated in Australia, the federal government has issued warnings on the risks associated with investing in digital currencies.
Japan
In general, Japan is considered a very progressive and friendly environment for cryptocurrency trading. The Japanese government has recognised Bitcoin as legal currency since 2017, under its Payment Services Act (PSA). The PSA also regulates digital currency exchanges in the country.
Japan also has its own digital currency known as J-Coin Pay, which was created by some of the country’s banks. However, J-Coin is not strictly considered a cryptocurrency as it doesn’t make use of Blockchain.
Sweden
While Sweden doesn’t have specific cryptocurrency regulation, it does consider digital currency trading to be a financial service and subject to mandatory reporting requirements.
Digital currency mining is not subject to taxation in Sweden if done as a hobby, but it may be if considered a business activity or investment.
Sweden is considering launching its own digital currency known as the e-krona, and its central bank has proposed making use of the currency mainstream.
United Kingdom
In the UK, cryptocurrency trading is unregulated. The government treats digital currencies as ‘private money’ and not subject to UK goods and services tax (VAT) if bought and sold.
However, VAT does apply for the use of digital currencies in exchange for goods and services. Investments in cryptocurrencies may also be subject to CGT.
China
Rules on digital currency trading in China are very strict. For example, the government has banned ICOs (initial coin offerings), prohibited payment institutions from issuing cryptocurrencies, and cracked down on Bitcoin mining.
China does have an electronic version of the Yuan though, known as DC/EP (Digital Currency Electronic Payment). The DC/EP is backed by Yuan deposits in China’s central bank and is considered legal tender. However it differs from other cryptocurrencies in that it is centralised and trackable rather than anonymous.
Bolivia
The Central Bank of Bolivia, which is responsible for monetary policy and issuing of bank notes, considers trading in cryptocurrencies a threat to its national currency. In 2014 it delivered an absolute ban on digital currency trading.
There are many other variations in how governments around the world are responding to digital currencies. But one thing is certain—the responses are likely to keep changing and evolving over time!
Image by Pete Linforth from Pixabay
Sources:
- Main source: https://www.loc.gov/law/help/cryptocurrency/world-survey.php#_ftn20
- https://moneysmart.gov.au/investment-warnings/cryptocurrencies-and-icos
- https://www.ato.gov.au/printfriendly.aspx?url=/General/Gen/Tax-treatment-of-crypto-currencies-in-Australia—specifically-bitcoin/
- https://www.mondaq.com/china/fin-tech/944330/regulation-of-cryptocurrency-in-china#:~:text=No%20PRC%20law%20or%20regulation,commodity%2C%20but%20not%20a%20currency
- https://medium.com/cpayfoundation/what-is-jcoin-and-why-is-it-so-popular-in-japan-44d98f382083
- https://www.investopedia.com/understanding-chinas-digital-yuan-5090699
- https://www.aljazeera.com/economy/2020/12/30/bb-e-krona-increasingly-cashless-sweden-eyes-digital-currency#:~:text=Sweden%20is%20among%20the%20first,underpins%20digital%20currencies%20like%20Bitcoin
