Bitcoin International Currency Controls

July 20, 2015

Though Bitcoin was introduced in 2009, it wasn’t until 2013 before any United States government agency seriously acknowledged a viable future for digital currency. In March, 2013 the United States Treasury Department went on record stating “standard federal banking rules aimed at suspicious dollar transfers also apply to firms that issue or exchange money that isn’t linked to any government and exists only online.” These cyber-currency money laundering regulations were put in place due to concerns over the anonymity of digital currency and their ability to easily fund illicit activities. These rulings mandated Bitcoin exchanges, along with other cryptocurrency dealers, were to be regulated similarly to how money-order providers now operate, including mandatory reporting for any transactions of $10,000 or more.

American corporations have come to realize in order to stay competitive they must compete on the global plane; while savvy investors see foreign currency as a sound investment option. Because of these reasons, strict accounting regulations are in place in terms of foreign conversion rates in relationship to tax reporting requirements, debt to equity swaps and long-term investment accounts.

While certain countries across the world are more progressive than the United States when it comes to Bitcoin acceptance many have exchange controls and limited movement of capital in place even more stringent than here in America. In France numerous corporations give their employees the option of having their salaries paid in Bitcoins. Then Finland, the Netherlands, Slovenia, Ireland and the UK all, not only promote Bitcoin acceptance, but have the largest majority of European Bitcoin ATMs. Research by Coindesk determined in 2014 there were 64 Bitcoin ATMs in 20 countries with 10 machines each in the United Kingdom and the Netherlands. Is this because foreign government cyber-currency controls are lacking and both corporations and individuals see an opening to circumvent money moving controls which limit personal freedom on how and where an individual’s money can and should be located?

Several years ago, Marginal Revolution published an online paper by Tyler Cowan detailing capital controls in China. Cowan wrote, “Capital controls in China are strict. It’s easy to bring money into the country, but getting it out (to invest or spend) is more difficult. That means there are plenty of wealthy Chinese citizens and residents looking to move their money around the world with greater freedom.” Bitcoins provide both the freedom and ability to avoid these constraining regulations. Instead of worrying about getting caught trying to smuggle a suitcase full of cash out of a country where that is definitely frowned upon, you now have the option of visiting an anonymous Internet café, purchasing Bitcoins, sticking your USB flash drive in your pocket and getting on the next plane to a country with limited currency controls. Instead of suspicious suitcases, your money is located on a flash drive the size of a lip balm. Then once off the plane, you get back online, exchange your newly purchased Bitcoins into your preferred currency and transfer them into your bank account.

Many desperate governments teetering on the brink of financial annihilation attempt to confiscate the financial spoils of their most wealthy citizens as they try to leave the country. Rumor has it in the past wealthy South Africans would have a very expensive boat constructed full of the latest bells and whistles. They would then leave on an extended sailing voyage, ultimately selling the boat and stashing the cash in another country. Now thanks to Bitcoin and other forms of digital currency, such extremes are no longer necessary.

A recent New York Times article entitled Can Bitcoin Conquer Argentina?, discussed in detail why this is a country ripe for currency change. Hyper-inflation is a constant problem. Banks are plagued with a history of instability and conservative estimates have determined less than half of all Argentinians have bank accounts or credit cards. The government has tried unsuccessfully to control inflation by forcing banks to devalue the rate of currency, creating a huge and very profitable black market currency trade.

While the actual number of Bitcoin users is still small in comparison to Argentina’s overall population, it has quickly been gaining ground among both techies and ordinary citizens who have begun using them for daily transactions. Since there are severe governmental restrictions in place on overseas currency being brought into Argentina, Bitcoin has become a very simple method of sidestepping this.

In 2013 financial chaos came to the small island country of Cyprus. Banks failed, cash withdrawals were limited and both individual and business deposits were charged a “deposit tax” of astronomical percentages. Capital controls to a small degree did limit some of currency leaving the country, but not soon enough. Many of Cyprus’ most wealthy investors had already cashed out before these controls were mandated; while many more lost hundreds of thousands of euros deposited in Cyprus banks; the very same banks who confiscated this money in order to cover their losses. The Cyprus financial collapse caused many Europeans to question the strength of their countries’ banking system, ultimately creating a surge in both Bitcoin interest and sales. Bitcoin value and trading volume increased exponentially all over Europe due to this crisis.

Many have begun to declare the giant global experiment of Bitcoin a success. The Bitcoin market is maturing and along with that the prophecy of Satoshi Nakamoto for creating a currency that is impervious to the whims and misdeeds of both governments and financial institutions, seems to be coming true.

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