Impact of Cryptocurrency on International Trade Law

1970 words (8 pages) Essay in International Law

30/07/19 International Law Reference this

Last modified: 30/07/19 Author: Law student

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Introduction

In the present era, nations are opening up their doors for other nations. Economic transactions are being global. This is the reason that there is a development of international trade law. An international trade law is a set of rules and regulations that provide a manner to do an international trade. As the name implies people of more than one nation involves in an international trade, the same is a required to be controlled by a law. On the other side, the world is being cashless and is developing the focus towards being digital. Cryptocurrency is one of the examples of such digital activity (Gamble, 2017). It is a digital asset that people use as a medium of exchange. Such currency uses a strong and high cryptography in order to secure financial transactions, verify transfer of assets and control the issue of creation of additional units. In the presented research papers, research will be done on various aspects related to cryptocurrency and international trade law including the impact of subjective currency on the international trade law.

Crypto Currency and International Trade

Before discussing the impact of cryptocurrency on international trade law, first to discuss the relation of cryptocurrency with international trade. People often use this currency in international trade because of different exchange rates (Everett, 2018). Such currency brings a loss of benefits to those who are into cross-border transactions. The other reason behind the use of cryptocurrency is the security offered by the same. Transactions using cryptocurrency are almost free from the charges of tax. In addition to this all, the transaction remains properly recorder for all the future references. However, this would not be right to state that the use of cryptocurrency only has positive impacts on international trades. Cryptocurrency is not valid in all the countries and hence the same cannot be used in every transaction.

Impact of Crypto Currency on International Trade

Cryptocurrency can have positive as well as negative impacts on the international trade. Whenever a new technology comes out, it proves an ease of doing business for the world, but soon some disadvantages of the same also start blinking. The same happened with the cryptocurrency. At the first instance, it brought many of the advantages for the business and international transaction but later on, it has been reviewed that the same has many negative impacts on cross-border transactions. Firstly, to discuss the positive impact of this virtual currency, this is to be stated that following are some of the benefits that cryptocurrency provides to the world:-

  • Lower Fee:- Before the development of cryptocurrency there is the very high cost of international transactions, but now as this currency is available to the world in a virtual mode, the transaction fee remains very minimal.. Further, it is a peer to peer review system and therefore no taxes exist there in the transaction done by the payment mode of cryptocurrency.
  • Secure Payment:- There is a properly regulated payment channel that governs all the outs and in of payment in case of interaction trade. Parties conducting the transaction and making payment via cryptocurrency are required to have money available upfront in order to ignore the chances of payment bouncing issues.
  • Standard exchange rate:- In an international trade transaction, a person has to deal with eth buyers and suppliers of different countries and this is the reason that there is a problem with the exchange rate. The currency of every nation has different values and a different exchange rate in comparison to the currency of other nation. In such a problematic scenario, cryptocurrency offers a standard rate as it accepted by almost every trader in international transactions. People use the same currency and therefore no issue remains there in respect of exchange rate.
  • Fast Movement of Money: – It takes hardly 10 minutes for the verification of a payment in the blockchain and hence, money moves very quickly from buyer to seller (Chuen & Linda, 2018).
  • Proper record keeping: – As mentioned earlier, all the transaction done using this virtual currency as a mode of payment, keeps in the record. These records can be checked and cross-verified by the parties any time in the future.

All the aforesaid are benefits of cryptocurrency. Now moving towards the negative impact of this currency in cases of international trades, this is to states that these are the drawbacks and failures of this currency. The same are discussed as follow:-

  • Legality of currency: – Some of the cryptocurrencies are not valid and legal in all countries. This creates an issue while transacting with any person from such countries. If a person accepts such currency, it leads an issue of illegal trade transactions.
  • Uncertainty: – Cryptocurrency is not a physical thing and value of the same remains uncertain. Sometimes, such currencies can be more valuable than a gold coin or the situations can be just adverse and therefore to say that there is uncertainty in the value of the same. In addition to this, people are not fully aware of the concept of crypto currency (Putnik, 2017)

International Trade Law and Cryptocurrency

As mentioned earlier that cause of many benefits, people are using the cryptocurrency very repeatedly in international trade transactions, and now the law is being a concern. This currency puts a huge impact on international trade laws in many ways as it affects the volume of transactions thereon. International law provides a manner, in which cross-border transactions should flow. Currently, cryptocurrencies are not regulated and legal in many of the nations. For instance, the Financial Conduct Authority of UK does not consider such currency as a valid mode of exchange. In such a scenario, the issue is the manner to deal with international transactions. As mentioned in the above discussion that this currency is far significant for the transaction, it challenges the current provisions of international trade law.

Impact of crypto currency on international Trade law

In an international transaction, many of the countries are involved. The lead issue that involves in respect to crypto currency in international transactions is of taxation. Every country has different tax law and it is very typical to check that whether a transaction is taxable or not. The use of crypto currency challenges these international laws. Security law is another area of concern. In Canada, provinces are there to regulate the securities market. In addition to this, Investment Industry Regulatory Organization of Canada is another self-regulatory origination, which works in the area of regulation of the security market. Now, the issue comes with the crypto currency. On the issue of taxation, Canada Revenue Agency commented that, whenever there is a use of crypto currency for a trade transaction, the same is required to consider as a barter system and the amount of article should be considered for the calculation of taxes.

The issue is to check that whether a crypto currency is a security and if yes what the related provisions are. In order to answer the query, this is to be stated that a crypto currency is not a security and therefore the provisions of security law of nation can apply to the same (Hoegner, 2015). The issue is not with Canada only, but many of the nations are facing the same.

Trade agreements are another important part of international trade law. Different countries have developed different trade agreements with each other that consist all the relevant terms and conditions. Rules related to taxes, payments, receipts are part of such agreements. Now after the introduction of cryptocurrencies, these agreements need to be modified. As cryptocurrency is a kind of digital and virtual currencies, there is a high risk of fraud transactions. The mode on which money should move in international transitions need to be overview again.

Canada considers being the most transparent country when it comes to the understanding of law related to digital currency. Canadian parliament has approved the world’s first national law on the subject of virtual currency. Recently, the central bank of Canada’s head quoted that he objects the cryptocurrency term as they are crypto but cannot be treated as a valid mode of currency. On the other side, Deputy prime minister of Singapore stated in January 2018, that law of this nation does not make any difference between the transactions done via cryptocurrency or via flat currency. The international law is also required to amend in such a way that clarifies the legality of cryptocurrency. Every country has it is own law on this subject and all the nations deal with such currency in a different manner that leads an issue if universal standards.

In addition to the taxation and securities law, Money laundering laws are also required to be recheck when it comes to the use of cryptocurrency. Money laundering is an activity in which people move the currency of one country to another in an illegal way. Every nation has it is own acts and policies on the issue of money laundering. The government of Australia sought to consider the concept of Japan while strengthening the anti-money laundering policies and while regulating the virtual currencies in the nation. UK treasury has recently reported a case of use of cryptocurrency in the matter of money laundering (Ligeti & Simonato, 2017). The treasury is concerned about the issue and is expected to reconsider its existing money laundering policies.

Before the development of the cryptocurrency, there were defined rules and regulations of every nation with respect to international transactions. Now, as the virtual currency is here, they cannot be applied as in their original form. Many ambiguities are there that which kind of transaction should be treated in which mode. To remove such ambiguities, amendments are highly required in international laws. Cryptocurrency does not attract amendment in the case of intra country transactions as people use this currency in international transactions mainly.

Conclusion

In order to conclude the topic, this is to state that, cryptocurrency is a very powerful form of currency. Many of the currencies are included in the definition of the same. When it comes to an international transaction, this plays a vital role. In cases of international trade transactions, a cryptocurrency has many positive as well as negative impacts. International trade law is another area of concern as this currency puts many impacts on the same. Present laws cannot be applicable in case of cryptocurrency as they have been developed by keeping the flat currency in consideration and this is the reason that international trade laws need to amend and recognize the cryptocurrencies in order to remove all the possible confusions.

References

  • Chuen, D., D., K.  & Linda, L. (2018). Inclusive Fintech: Blockchain, Cryptocurrency And Ico. Singapore :World Scientific.
  • Everett, C. (2018). The Cryptocurrency Investing Guide: How to Invest and Trade Cryptocurrencies for BIG Profit in 2018. US: R&C Publishing via PublishDrive.
  • Gamble, C. (2017). The legality and regulatory challenges of decentralised crypto-currency: a western perspective. Int’l Trade & Bus. L. Rev.20, 346.
  • Hoegner, S., (2015). The Law of Bitcoin. Bloomington : iUniverse.
  • Ligeti, K. &  Simonato, M. (2017). Chasing Criminal Money: Challenges and Perspectives On Asset Recovery in the EU. UK: Bloomsbury Publishing.
  • Putnik, J., (2017). Cryptocurrency 101: A 2018 Simple Beginners Guide to Buying, Investing, Trading and Mining Bitcoin, Ethereum, Litecoin and Other Altcoins, The strengths and weaknesses of cryptocurrencies and future. US: 1kkbooks via PublishDrive.
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