There are several areas of concern for any professional that represents clients using Bitcoin for international transactions. The use of Bitcoin for cross border transactions is attractive for many reasons, including instant transfers, low cost and the lack of a need to use intermediary banks. However, there are some issues to consider when using digital currency for international business or personal financial transfers. Also, governmental bodies have begun to weigh in and create some parameters for international use of Bitcoin, and that trend is likely to continue.
The G7 Financial Action Task Force recently released a guidelines report on Bitcoin, primarily as a way to define illegitimate use of digital currency in international transactions. The overt concern of the Task Force is the use of Bitcoin for money laundering and funding of terrorist activities, but that may be more of a cover for broader regulation of digital currency.
As part of the report, a proposed definition of Bitcoin is offered that clearly eliminates its role as a currency and instead described is:
- A medium of exchange
- A unit of account, or
- A store of value without legal tender (currency) status in any country
This early attempt to place a finite legal definition on Bitcoin at an international level raises concerns. Cleary, international bodies are attempting to limit future growth of Bitcoin as a currency, and are using prevention of financial crimes as the platform. This conclusion is underscored by the fact that bribery and tax evasion were not included on the list of specific concerns, but each of those could represent a more common problem of illegitimate digital currency use.
This report may form the basis for definition and regulation of Bitcoin at national levels, as countries begin to draft their own laws regarding its use in the international arena. If countries simply adopt the definitions in the report as planned, Bitcoin’s future use as a real currency could be effectively curtailed.
Countries That Limit the Use of Bitcoin for Transactions
A more practical concern is the ability of foreign governments and banks to limit the use of Bitcoin as a currency for international business. Notably, China’s central bank made it clear that Bitcoin would not be considered to be a currency, although they still view it as an acceptable medium of exchange. Further, China’s largest Bitcoin exchange recently began to refuse deposits for Bitcoin in local currency. As a result, Bitcoins must now be purchased in either Hong Kong or US dollars, an international account is required for those who wish to use digital currency.
In France, a Bitcoin exchange was shut down because it had not obtained approval from the central bank, and was therefore presumed to be engaged in money laundering. That country’s law requires all Bitcoin exchanges to comply with approval processes, and any transfers to personal bank accounts from unapproved exchanges can bring criminal charges.
These steps are likely to continue as a way to maintain the central role of traditional currencies, and resist the emergence of a valid virtual alternative, even if it means limiting its use for business.
Uses for International Travel and Remittances
One potential area of growth for Bitcoin is in the area of international travel. Historically, visitors to foreign countries have been limited to ATM or credit card transactions that can carry high fees and poor currency exchange rates. As Bitcoin becomes more widespread in foreign markets, there may be a new wave of use by travelers. This can pose some challenges as Bitcoin ATMs begin to multiply offering easy conversion, and those carrying Bitcoins stored in personal ‘wallets’ may be subject to border scrutiny by customs officials. It is unclear if Bitcoins are subject to the currency limits imposed at many international borders.
For some developing countries, the area of remittances by offshore workers is another arena of potential use for digital currency. Although it would appear the high demand for low cost remittances would permit this type of use to soar, many foreign banks are reluctant to service the market given the potential for illicit use. More governmental regulation of Bitcoin will further chill the participation of smaller countries or those typically associated with criminal activity such as Mexico and its drug trade.
For legal and financial professionals, the evolving international arena probably presents the most challenge in advising clients on Bitcoin use. The laws and regulations are sure to change under competing pressures for a new medium of international exchange and efforts to place controls on potential abuse.