“Obviously, it is not technology that is changing-technology is changing you.” Jeanne Ross, former MIT Sloan Center for Information Systems Research
If El Salvador’s “Bitcoin Law” is the “loud voice” of Bitcoin, then when the International Monetary Fund (IMF) and the World Bank question the legislation, it is a counterattack by the current empire.
However, if El Salvador can implement its Bitcoin law in the face of numerous technical and legal obstacles, it may force organizations that oppose it to make changes and accelerate reforms in the way U.S. tax and commercial laws treat cryptocurrencies.
Surprise footage heard around the world
El Salvador promulgated the Bitcoin Law after obtaining the overwhelming approval of the Congress, becoming the first country in the world to adopt Bitcoin as legal tender. Bitcoin law has only passed a few days After El Salvador’s President Nayib Bukele (Nayib Bukele) first announced the launch of the plan. The short time between Bukele’s unexpected announcement and the passage of the Bitcoin law prevented opponents from stopping it.
However, in a series of prescient tweets, Avanti Financial Group CEO and Bitcoin advocate Caitlin Long predicted “a war” against Bitcoin law and warned that “the world is about to put pressure on it” [El Salvador] Consider the stakes. ”
1/ About a historic day #Bitcoin: #El Salvador The president publicly announced his support for the legislation #BTC legal tender. *If* it does become law, it will have many secondary effects.You have to be strong in what may be cominghttps://t.co/BrrNxaLzpZ
-Caitlin Long 🔑 (@CaitlinLong_) June 6, 2021
Leverage and loan pools of the International Monetary Fund
In fact, on the second day after El Salvador passed the Bitcoin law, the International Monetary Fund claimed that the legislation raised “a number of macroeconomic, financial, and legal issues that require careful analysis.”The World Bank, which often cooperates with the International Monetary Fund, joined the competition and announced that it has Rejected Salvador’s request for help Implementation of its Bitcoin law due to “environmental and transparency deficiencies”. Although these statements from powerful multinational organizations in Washington embody the struggle that Lang predicted in her tweet, the momentum of Bitcoin law may accelerate how these organizations and laws in the United States deal with cryptocurrency reforms.
According to its management documents, the IMF is more likely to resist the Bitcoin law by exerting economic pressure, rather than by legally challenging the legislation of a sovereign country. The member states of the International Monetary Fund, including El Salvador, are bound by the code of conduct documented in the terms of the IMF agreement.
These provisions require member states to allow their currencies to be exchanged freely and unrestricted into foreign currencies, promptly notify the IMF of changes in financial and monetary policies that affect the economies of other member states, and modify its policies to meet the needs of all member states. . International Monetary Fund management Its members can borrow funds to “help countries comply with the code of conduct in the terms of their agreement.” In other words, the IMF enforces its terms by visiting its loan pool.
As El Salvador is seeking a loan of US$1.3 billion from the International Monetary Fund to revitalize its economy, the International Monetary Fund may try to restrict or withhold this important fund in accordance with the terms of the agreement. For example, the International Monetary Fund may argue that it was not fully notified before the Bitcoin law. It can also require El Salvador to restrict or modify the Bitcoin law to meet the “needs of all members.”
However, it seems that concerns about punitive action by the International Monetary Fund based on the “problems” raised by the Bitcoin law may have been exaggerated. After the IMF expressed its concerns, El Salvador’s Finance Minister Alejandro Zelaya assured the IMF that the country would not abandon the U.S. dollar as a currency. Zelaya also stated that negotiations with the International Monetary Fund are progressing smoothly and claimed that the IMF has no problems with the Bitcoin law. The IMF did not respond to Zelaya’s remarks, so the jury is still inconclusive as to what action the IMF might take to respond to the Bitcoin law.
Assuming El Salvador complies with its Bitcoin law, it still needs help to implement it.According to the draft, the Bitcoin law only allows 90 days Implementing measures to make Bitcoin a legal tender domestic. Although El Salvador has established a partnership with Strike, a private digital wallet company, to build the necessary infrastructure for Bitcoin law, the World Bank flatly rejected the country’s request for assistance.
The potential impact of Bitcoin law on the World Bank
Despite the World Bank’s refusal to assist with Bitcoin law, an informative article by Martin Rivers Suggest Legislation may force the World Bank to accept Bitcoin. Specifically, the International Bank for Reconstruction and Development of the World Bank is bound by its founding document, the terms of the agreement. Article 5 Section 12 status Instead of accepting members’ currencies in certain circumstances, banks “should accept […] Notes or similar obligations issued by a member’s government or a custodian designated by the member. ”
Therefore, the terms of the World Bank would require it to accept notes issued by El Salvador backed by its Bitcoin reserves. Article 2(9) further stipulates that the World Bank must repay the proceeds when the face value held by the member currencies appreciates. If the opposite happens, the member must provide additional currency to maintain the face value it holds. Therefore, if Bitcoin is regarded as the local currency of El Salvador, the World Bank may increase its holdings of Bitcoin or pay El Salvador’s Bitcoin earnings based on the price trend of the cryptocurrency.
Central American Economic Integration Bank expresses its support
Regardless of the World Bank’s position on Bitcoin law, Other banking organizations focused on Central America Help is being provided to implement it. For example, Dante Mossi, CEO of the Central American Bank for Economic Integration (CABEI), stated that the bank will provide El Salvador with technical assistance in implementing the Bitcoin law.
CABEI has 15 member states and seek To “promote economic integration and balanced economic and social development in Central America.” In expressing his support for the Bitcoin law, Mossi pointed out that this will reduce the cost of remittances for relatives of Salvadoran nationals living abroad.Mosi statement He is “very optimistic” that El Salvador will make Bitcoin a legal tender, and he also asked the Salvadoran government to formulate regulations to prevent “bad actors” from taking advantage of Bitcoin’s pseudonymous function.
U.S. accelerates tax and commercial law reforms
The Bitcoin law may also force the necessary reforms to the handling of cryptocurrencies in the U.S. tax and commercial laws. In March 2014, the U.S. Internal Revenue Service issued a notice describing cryptocurrencies as property.When this notice was issued, the IRS Observed Although digital currency can operate like a “real” currency, “it has no legal tender status in any jurisdiction.”
Since Bitcoin is the legal tender of El Salvador, the IRS may be forced to review its stated principle of treating Bitcoin as property for tax purposes. If the U.S. Internal Revenue Service treats Bitcoin as a traditional currency, it will require any transaction or investment income of assets to be taxed at the ordinary income tax rate, rather than the more favorable capital gains tax rate. However, decentralized cryptocurrencies like Bitcoin do not comply with the Ministry of Finance’s definition of currency as nationally issued coins or paper.
Current tax regulations and currency definitions are not suitable for Bitcoin because they predate the emergence of blockchain technology. However, U.S. taxpayers who have households or businesses in El Salvador and other countries/regions that use Bitcoin as legal tender need to have a clearer understanding of their tax obligations.
Legislators and regulators should not impose an outdated framework on Bitcoin. Instead, they should draft new rules tailored to cryptocurrencies and not impose extremely complex reporting burdens on the increasing number of Bitcoin users.Establish tax havens for certain countries at the lowest limit Cryptocurrency transactions, such as those proposed by Congressman Suzan DelBene in the Virtual Currency Tax Fairness Act of 2020 proposed by the House of Representatives, may be a good start.
In fact, the tax law has provided a safe haven for small foreign currency transactions. Specifically, 26 USC § 988(e) status Income from “personal” transactions involving foreign currencies under $200 is exempt from tax. As El Salvador adopts Bitcoin as legal tender, some American citizens may argue that Bitcoin is a foreign currency and that gains from Bitcoin transactions of less than $200 are not taxable.
However, this exemption only applies to “personal” transactions and does not apply to transactions conducted for trade and investment purposes. Therefore, without tax reform, all transactions in Bitcoin seem to continue to be taxable events. This reality will impose a complicated reporting burden on American taxpayers who regularly send small bitcoin payments to multiple people in El Salvador.
Although politics may postpone meaningful tax reforms indefinitely, legal experts who write private business laws in the United States have begun to adapt to cryptocurrencies. The Uniform Commercial Code (UCC) harmonizes the laws of commercial transactions and plays a vital role in improving the certainty of commercial transactions. Currently, El Salvador’s adoption of Bitcoin as legal tender makes it a “currency” under Section 1-201(a)(24) and 9-312(b)(3) of UCC is still controversial.
This uncertainty makes it difficult to include Bitcoin in secured transactions under UCC. However, the Uniform Law Committee has drafted a proposal to amend UCC, specifically targeting “intangible currencies” such as Bitcoin. These proposed changes clarify that security interests in “intangible currency” can be perfected only by establishing “control” over assets.
The power of Bitcoin adoption changes
Bitcoin is now recognized as a legal tender by a sovereign country, but it is striving to coexist with powerful financial organizations and laws that were designed for an economy that predates blockchain technology. Despite suspicion and resistance, El Salvador appears to be advancing the implementation of its Bitcoin law. If El Salvador implements the Bitcoin law and other countries follow suit, Bitcoin may change organizations that resist its adoption and accelerate the legal and financial reforms required to process cryptocurrencies.
This article is for general reference only, and should not and should not be regarded as legal advice.
The views, thoughts and opinions expressed herein are those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph or Nelson Mullins Riley & Scarborough.