Countries Banning – and Embracing – Cryptocurrency: What it Means and How It Affects the Global Economy
Cryptocurrency is a digital currency that uses encryption techniques to regulate the production of the currency and verify fund transference. It has been described as a decentralized currency because it operates independently of any central bank.
By eliminating the vested interference of governments and central banks in currency manipulation, e-money may be an invention as profound as the internet on which it rests. It has the potential to significantly decrease worldwide poverty by allowing progressive thinkers and enterprising institutions access to essential financial resources.
The Ever-Growing Cryptocurrency Market
The popularity of this virtual currency has exploded in recent years because it’s based on a solid technological foundation — the blockchain — a distributed ledger system that works far more efficiently than the traditional operations of a centralized banking system. Initially, the surge in popularity focused on Bitcoin, the first and largest, but has now extended to other cryptocurrencies as well.
Cybercash has been getting plenty of positive and negative press lately for a number of reasons. Valuations have either skyrocketed or plummeted, making people rich or bankrupting them. The price of Bitcoin is now out of reach for the small investor. Bitcoin prices are now averaging around $7,000.
Naturally, all this consumer attention has led to government attention. Regulators have been surprised, and often alarmed, at how quickly fundraising trends have grown. Startups have been able to pull in millions in capital using ICOs, initial coin offerings, to investors in exchange for fiat currency.
While some governments have tried to impose regulatory oversight on this free-flow of financial transactions or to ban it altogether, others have been open to including it in their economic model.
Since digital currency is such a new phenomenon, regulations have been marred by confusion.
On the one hand, regulators want to curb the possibility of untrammeled money laundering and fraud. On the other hand, the blockchain has solved so many of the intractable problems in the banking system and in economic policy decision-making that draconian policies would kill the continuing evolution of the blockchain, which may be powerful enough to help fight global poverty. It’s particularly applicable in countries where poverty is a result of insufficient natural resources, hyperinflation, lack of jobs, lack of capital, lack of access to banking, and lack of access to markets.
Countries Banning Cryptocurrency
Here are some examples of countries banning cryptocurrencies:
- Bangladesh (threatens users with year-long imprisonment)
- Kyrgyzstan (allowed, but can’t be used for payments)
- Vietnam (prohibited for financial institutions)
Countries Embracing Cryptocurrencies
Here are some examples of countries welcoming cryptocurrencies:
- Hong Kong
- New Zealand
- United States
- United Kingdom
Why are Countries Banning Cryptocurrencies?
Although they resolve many of the long-standing problems arising from inaccurate financial forecasting that cause all sorts of economic problems for nations in managing their national assets, it has not been welcomed by many countries.
Moreover, the legal status of various cryptocurrencies varies widely from one country to another, with many countries undefined or changing their views from negative to positive. For instance, Russia was totally against Bitcoin in 2014. Yet it appears to have completely changed its opinion and has become especially enthusiastic about Ethereum. In fact, Russian President Vladimir Putin has publicly declared Russia’s cautious support for cryptocurrencies.
The list of countries that have banned or are considering bans, keeps changing. Additionally, within each country cryptocurrencies are classified differently by courts, government agencies, and central banking departments. The result is that there are diverse reactions within a country. In Canada, for example, the government is positive toward cryptocurrencies but major Canadian banks ban cryptocurrency.
Case Study: Bitcoin
We can get a glimpse of the worldwide ban situation by looking at how Bitcoin has been treated by numerous countries.
Here are some countries that have banned Bitcoin :
- China in 2017 (The China cryptocurrency ban was also announced in 2013).
- Russia in 2014
- Thailand in 2013
- Vietnam in 2014
- Taiwan in 2015
- Colombia in 2017
- Ecuador in 2015
- Bolivia in 2014
- Bangladesh in 2014
- Kyrgyzstan in 2014
Reasons for Cryptocurrency Bans
Those researching virtual currency have become accustomed to reading headlines in the financial press regarding various bans. But why are countries and banks putting up such a fuss?
The cryptocurrency ban in India is quite clearly a result of how the Reserve Bank of India has barred banks and other financial institutions from doing business with individuals or firms involved in digital currency.
Will the cryptocurrency ban in India have an adverse effect on the country? Yes. The country may see millions, perhaps billions of dollars, leaving the country from investors looking to benefit from cryptocurrency markets.
The cryptocurrency ban in India is somewhat ambiguous because they have not overtly banned or declared it illegal to trade in virtual currency. Nor have they shut down cryptocurrency exchanges.
Why a cryptocurrency ban in India? Apparently, the government is concerned that digital currency will degrade the rupee, encourage finance terrorism, and facilitate money laundering schemes.
Banned in China
Did China ban cryptocurrency? Chinese regulators concerned about how digital currency would impact their fiat currency. They made a strong effort to push for a cryptocurrency ban in China and one did occur – sort of. They appear to have a strong animosity toward Bitcoin. They are also highly suspicious of ICOs, or initial coin offerings, which they have declared as an illegal fundraising activity. But despite these restrictions, Bitcoin trading is still thriving in China despite increases in Bitcoin prices, and the only way the government can stop it completely would be to shut down the Internet.
Cryptocurrency Ban in Pakistan
The cryptocurrency ban in Pakistan is official. The country’s reserve bank, The State Bank of Pakistan (SBP) has banned digital currency. Still, despite the ban, individual investors are opening accounts with exchanges. Bitcoin is particularly popular.
Contradiction in Canada
Although the Canadian government has not banned virtual currency, large banks, like the Bank of Montreal (BMO Financial Group) are banning the purchase of digital currency with credit and debit cards issued by their bank.
This clampdown is ironic because Canada is considered one of the friendliest countries for cryptocurrency miners, with much talk about Canada becoming the “global hub for the digital currency industry.” The country is developing positive cryptocurrency regulation.
The Cryptocurrency Ban in the US
The United States faces a similar situation to Canada. Although the overall government sentiment is favorable to virtual currency, this benign, open and curious view is not shared by large American banks like JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. who are doing everything they can to stop people from putting cybercash on their bank-issued credit cards. They would prefer the US ban digital currency.
Cryptocurrency in the UAE
Like Canada and the US, the cryptocurrency ban in the UAE is only coming from banks. The government has no ban in place.
Citizens of the UAE are free to use licensed brokerage companies. Bitcoin and Ethereum are the most popular cryptocurrencies used by traders here.
The Cryptocurrency Ban in Other Countries
Here are some more examples of hostility to digital currencies:
In Bangladesh, digital currency users are subject to 12 months in prison.
In Bolivia, it is viewed as a threat to monetary stability and as an avenue for tax evasion.
In Cyprus, it is considered dangerous because they are unregulated.
Countries Embracing Digital currency
Australia has not only legalized Bitcoin, declaring it can be used as money, but has even gone on to removing Bitcoin from getting entangled in double taxation.
Bulgaria has not only accepted virtual currencies, but its national revenue agency has issued taxation guidelines.
The United States has the largest number of digital currency users in the world.
Chile sees digital currencies as helping to transform the country into an innovative hub for entrepreneurs in Latin America.
Many countries that are encouraging the adoption of digital currency like Australia, Canada, United States, UK, Denmark, Switzerland, and Germany are using policies that encourage entrepreneurship and non-censorship.
Some countries have changed their attitude toward cryptocurrency. South Korean trading was in jeopardy with the government considering cryptocurrencies as opening the door to money laundering and other illegal acts.
Unfortunately, entrepreneurs and economists, officials and bankers are also dealing with entrenched interests who see digital currencies as a financial revolution that will disrupt the power of centralized governments and a central banking system that has ruled the earth for centuries. Thus, even in countries that have laissez-faire policies that encourage cryptocurrency, there are cries for a cryptocurrency ban.
It should not be assumed that only developed countries see the value of digital currencies. Many developing countries are embracing them because they recognize that they can help global prosperity.
Some Frequently Asked Questions
What is the United States view about virtual currency?
It’s not at all clear how the US government has handled virtual currency so far, nor is it clear how it’s expected to handle it in the future. Will the US ban cryptocurrency? That seems unlikely. Cryptocurrency mining and cryptocurrency exchanges are thriving in this country, as well as coin offerings, known as ICOs.
The United States has developed a variety of new regulations at the state level to legitimize virtual currency primarily for tax purposes. Additionally, the FEDS, IRS, SEC, and CFTC have different opinions.
Despite this ambiguity, the US has the highest number of virtual currency users in the world. It also has the highest number of Bitcoin ATMs.
Some states are friendly toward digital currencies, while others are totally against it. Montana, South Carolina, Tennessee, Kansas, and Texas are friendliest. Meanwhile, New Mexico, Washington, North Carolina, Georgia, Hawaii, Connecticut, New Hampshire, and New York are opposed to the digital currency. The rest of the states are undecided.
In short, the jury is out on what should be done about digital currencies.
Encouragingly, the US Congress has included mention of it in The 2018 Joint Economic Report. However, the Trump Administration is sending just the opposite message when it banned the Venezuelan cryptocurrency petro.
Because of these mixed messages, it’s unclear whether this suggests that the Federal government is opposed to digital currencies or whether this ban is just due to the view that Venezuela is trying to get out of the economic pressure it faces under the current US sanctions.
Adding to the confusion is Facebook’s embargo on digital currency ads and Google, too, will prohibit virtual currency ads. The reason given for this boycott is that trading digital currencies is “speculative,” which is somewhat bewildering because one can say that for stocks as well.
How are banks reacting to this new money?
While there has been an interest by the central bank in many countries to incorporate digital currencies into their banking framework because the market cap is too big to ignore, an estimated $150 billion, many large banks ban cryptocurrencies, even in countries embracing them.
How is the private market reacting to this new money?
There is tremendous confusion. Part of this has been since an explanation of how the blockchain is not easy to grasp, part of it has been due to trying to figure out how cryptocurrencies work with existing monetary systems. Guidance from governments and economists have been contradictory.
It can be difficult to discern which countries are embracing digital currency and which have permanent bans as there are lots of grey areas.
Here are some examples to illustrate how much ambiguity there is about virtual currencies:
Argentina has not banned cryptocurrencies, but its government does not consider it a legal currency that can be used for paying debts.
Brazil has accepted cryptocurrencies as an asset that can be subject to a 15 percent capital gain taxes, but the government does not recognize cryptocurrencies as money.
Austria and Belgium are examples of countries that have neither encouraged nor discouraged cryptocurrencies. They have not regulated digital currencies.
South Korea changed its attitude about virtual currency. In 2017, the press was asking, “Will South Korea ban cryptocurrency?” Will South Korea ban cryptocurrency trading?” But the much-anticipated South Korea ban on cryptocurrency did not occur. Instead, Choe Heungsik, the governor of South Korea’s Financial Supervisory Service, worked to regulate cryptocurrency trading.
With that said, it’s important to point out that virtual currency has the potential to affect local and global economies because it completely reinvents financial transactions, sweeping away many of the problems inherent with our traditional currency systems. One of the primary reasons modern finance is broken is because all currencies have derived their value in relation to the US dollar when it used to be the world’s reserve currency. Although the US dollar was the gold standard, the value of the dollar was no longer tethered to gold when Richard Nixon severed the relationship in 1971. Without a gold standard, money can’t be protected from the consequences of inflation.
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