By Nelly Favis-Villafuerte
Whether we like it or not, the shift from cash to digital/electronic currency is now unstoppable. In fact, the coming of the so-called cashless society is predicted in the Holy Bible. Today, the transformation from the physical cash to the digital currency has entered a fast stage of acceleration. Not only in US but in other countries as well including the Philippines.
Cryptocurrency is an example of digital/electronic currency that has been shaking and altering global finance and economy in recent years. It will be recalled that it was in 2009 when bitcoin, the first currency was founded. Countries from all over the world are grappling on how to treat cryptocurrency. The basic problem of countries is whether or not cryptocurrencies should be granted the same legal status as other currencies – considering that there are risks involved and the public has to be protected. Some countries however believe that just warning the public of the risks involve in using cryptocurrency is sufficient. They do not go as far as regulating cryptocurrency. Definitely, there is lack of legal protection of the public in this case. On the other hand, there are other countries that hold that cryptocurrencies (virtual currencies) are not money or currency but are assets (like Sweden) that are subject to capital gains tax and may be subject to goods and service tax. It is reported that Norway also holds this view. Some countries also hold the view that digital currency is not legal tender. And therefore cannot be subject to sale and purchase by banks and licensed exchanged dealers. Strangely, there are countries that hold that virtual currency is not money or currency – and yet may be subject to anti-money and laundering regulations. Still, there are some countries that say that digital currencies are deemed securities and are therefore under the supervision of the Securities and Exchange Commission (SEC) like the Philippines.
The variety of the legal stand of different countries confirms one thing – that there is yet no consistent and united stand of the various countries as to the legal status of cryptocurrency. To answer the question: Should cryptocurrency exchanges be regulated? The writer of this column strongly believes that – yes, cryptocurrency exchanges should be regulated. And more – countries should strive to come out with innovative digital solutions to combat the risks of using cryptocurrency. Like in the case of physical currency, there are risks and dangers of using cryptocurrency. This is the reason why the recent developments in the world currency market should not be taken lightly.
The so-called currency market is the market for money which is far larger than the stock market. In fact, the currency market is the world’s largest and most important market. We cannot talk about problems in the economy without relating it with the currency market. It is a fact that when governments come out with policies to stimulate their economies – money is involved. The major players in this currency market are the banks including central banks.
One of the risks of using cryptocurrency is the danger of using cryptocurrency to finance terrorism. Cryptocurrency as a means of funding/financing terrorism is drawing the attention of terrorists because of the speed and anonymity of soliciting donation by posting a cryptocurrency address (like putting up bitcoin address) for the payment. Funds/donations solicited through crypto websites may be used to fund terrorist’s attacks or promote the terrorists propaganda. One wonders as to the nature of these attacks. In the case of cyber terrorism for example (thru computer technology), terrorists can easily set a bomb by remote control or knock out the air traffic control; or terrorists can hack computers on military networks and obtain military secrets. How about the September 11, 2001 attacks in the United States where about 3,007 people were killed?
Indeed, transferring funds through digital currencies and online payments processing systems have dramatically increased in recent years and terrorists find this medium of transferring funds convenient as there is a lower risk of detection because of anonymity. Transfer of digital currencies are largely unregulated and not subject to the same requirements as most financial institutions. Transfers by financial institutions are subject to stricter regulatory requirement. Not so in the case of digital currency. Digital currency transfers are not subject to the know your customer’s requirements.
Have a joyful day! (For comments/reactions please send to Ms. Villafuerte’s email: [email protected]).