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Cryptocurrency and Government Policies around the World
By admin October 22, 2018

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Today’s government regulators face a rising challenge from the fast-growing cryptocurrency technology, and different countries’ attitudes toward it seem to vary a lot. On October 11, Dubai launched the world’s first government-backed cryptocurrency. A state-backed subsidiary of the Dubai Department of Economic Development launched the digital currency called Emcash, which can be used for making grocery payments, paying for utility bills and school tuitions. In contrast, the Chinese government takes a hardline policy by banning all Initial Coin Offering (ICO) activities and clamping down offshore cryptocurrency trading servers.

Essentially, a cryptocurrency is a digital currency, which uses decentralized control and strong cryptography to secure and verify transactions. The most popular cryptocurrency in the world is bitcoin, which had 2.9 to 5.8 million unique users in 2017, according to research produced by the University of Cambridge. The underlying philosophy of cryptocurrency challenges the ideas of conventional currency, because there is no government control or traditional banking systems involved in the issuance and transaction process of cryptocurrency. And that’s what creates the anxiety among government officials.

The impact of cryptocurrency on the future of government policies can be game-changing. Some scholars have examined the impact of cryptocurrency on government’s monetary policies and concluded that the increasing amount of money suppliers may deprive central banks of their ability to carry out monetary policy successfully (King, 1999). In this case, the interest rates set by the central bank become less effective and relevant to real-life economic transactions (Friedman 2000). In addition, the usage of cryptocurrency in controversial settings, such as the dark markets and other underground transactions, has raised security concerns from the law enforcement agencies.

The cryptocurrency industry is booming, yet the vast majority of related activities are taking place unregulated. Heated debates are going on about whether and how government should regulate this industry. Advocates for regulating the cryptocurrency argue that legislations and law enforcements are necessary to prevent money laundering and the terrorism-related transactions, they also enable governments to strengthen consumer protection and to tax crypto transactions effectively. On the contrary, some opponents draw the comparison of cryptocurrency to gold and contend that such digital assets do not need regulations, or at least, should not be regulated as securities. They warn that forcing cryptocurrency into the conventional security regulation framework will risk stifling the burgeoning crypto market.

Looking at the cryptocurrency regulations around world, we notice that some governments are embracing cryptocurrency by issuing their own digital currencies. For example, the Swedish government plans to launch e-krona, an equivalent to the country’s regular currency, in 2019. Venezuela, a country once suffered from hyperinflation, has already launched its own state-backed digital currency, the petro. Some countries have legalized cryptocurrency as a legal tender or an item of barter, such as Japan and the Netherlands; some countries choose the middle ground by making cryptocurrency a taxable asset but not a formal currency, these countries include Brazil, Finland, Israel, Germany, and Norway; some countries ban financial institutions from issuing and trading cryptocurrency, such as China and Bangladesh. However, most countries in the world take a “wait-and-see” approach to this issue and leave the industry in the grey area.

There are both challenges and opportunities for governments in the age of cryptocurrency, and how each country chooses to govern and harness cryptocurrency and the technology behind it will inevitably shape the future of these economies.

 

FURTHER READINGS:

Cryptocurrencies by Country

Cryptocurrencies and Monetary Policy

China Central Bank Warns of Cryptocurrency, ICO Risks in Public Notice

Dubai Launches World’s First Government-Backed Cryptocurrency

Regulations of Cryptocurrency around the World


Thanks for sharing !


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