Governments are Enacting Favorable Regulations on Cryptocurrencies
New Zealand Legalizes Salary Payments in Cryptocurrencies such as Bitcoin
Last month, the government of New Zealand approved a law that legalized making salary payments to employees in cryptocurrencies such as Bitcoin. The law went into effect on September 1, 2019 and below is a snapshot from the New Zealand government issued bulletin about salary payments in crypto:
Application of the legislation - Introduction
- An agreement to pay an employee in crypto-assets could be structured in two ways. The first way is as an agreed deduction from the employee’s gross salary or wages (where the employee’s after-tax remuneration is, in effect, being traded for a payment of crypto-assets). It is well-settled law that the employee is subject to PAYE on the full amount in this situation.
- The second way is as a reduction in calculating the employee’s gross salary or wages (also known as a salary sacrifice). The following analysis considers how the provision of crypto-assets will be treated when a salary sacrifice arrangement is valid, in particular, whether PAYE or FBT applies.
China is Planning to Issue a State-backed Cryptocurrency
According to many media reports and Chinese state controlled media, China’s central bank is developing and planning to issue a Chinese cryptocurrency backed by Renminbi M0 reserves. Binance, the world's largest cryptocurrency exchange, published a detailed report on the expected structural and operational characteristics of how the Chinese government issued cryptocurrency would unfold. According to the report by Binance, the cryptocurrency would be based on a two-tier system as stated below:
Based on recent details provided by the central bank-related entities, this digital currency would be based on a “two-tier system” for issuance and redemptions.
- On the first layer, the PBoC would issue and redeem China’s CBDC via commercial banks.
- On the second layer, commercial banks would be responsible for re-distributing China’s CBDC to retail market participants. Yet, on this second layer, the use of blockchain remains undecided (“blockchain as an option”) as the PBoC still hasn’t drafted a clear technical roadmap for its digital currency.
It has also been reported that Alibaba and six other major Chinese companies will receive the first distribution batch of the Chinese government issued cryptocurrency.
Marshall Islands Government to Launch a Cryptocurrency called “Sovereign”
The Marshall Islands, a nation of over 50,000 people, uses the U.S. Dollar as its national currency. The government recently launched its own official State-backed cryptocurrency called “Sovereign”. David Paul, one of Marshall Islands’ ministers, recently published an article detailing why the island is issuing its own sovereign currency. An excerpt from his publication is below:
“First, that the currency would be based on blockchain technology – this is vital for us in the Marshall Islands, for reasons I will outline below. Second, that the growth of our money supply would be predetermined and tamper proof. And, last but not least, that compliance would be baked into the currency protocol itself, while maintaining privacy for individuals.”
According to the publication, the Marshall Islands’ cryptocurrency will have a fixed supply of 23 million with a fixed growth rate of 4% annually.
Nations around the world are warming up to the idea of launching State-issued cryptocurrencies or legalizing commerce (such as salaries) using existing cryptocurrencies. This may eventually lead to a reduction in the minting of paper-based currencies by treasuries around the world as Blockchain adoption spreads.
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