On 9 June 2021, the El Salvadorian President, Nayib Bukele, and the El Salvadorian Congress voted on the “Bitcoin Bill” that would see the cryptocurrency Bitcoin, becoming adopted as legal tender in the country. The Bill passed with an astounding 62 out of 84 possible votes cast in favour.
Accordingly, Bitcoin is set to become legal tender within El Salvador on 7 September 2021, being 90 days from the date the Bill was passed.
The move to recognise Bitcoin as legal tender in El Salvador raises the question – what effect will El Salvador’s ‘bold’ move have on the economies and legislative procedures for other nation-states such as Australia?
Bitcoin becoming legal tender in El Salvador may mean that Bitcoin could be considered as a foreign currency rather than a mere intangible form of digital asset or cryptocurrency.
What is happening in El Salvador?
It has been reported that over 70% of the population in El Salvador (which has a population of 6.5 million people) is unbanked and do not have access to a bank account. The move to adopt Bitcoin as a form of legal tender aims to promote financial inclusion and reduce barriers to accessing the financial system for El Salvadorians.
In facilitating the adoption of Bitcoin becoming a form of accepted legal tender, the El Salvadorian Government will absorb the conversion costs for the exchanges to facilitate the exchange of fiat currency (such as USD) and Bitcoin and has mandated that merchants must accept Bitcoin as payment for goods and services. The El Salvadorian government has also increased the promotion of the new Bitcoin Law by airdropping Bitcoin into the wallets of El Salvadorians.
How will Bitcoin becoming legal tender in El Salvador impact us in Australia?
The answer to this question is quite unknown as the move by El Salvador is unprecedented and there has been no clear guidance to date.
Our view is, that upon Bitcoin becoming considered as a legal tender in El Salvador, Bitcoin may no longer be considered solely as a digital asset or cryptocurrency and could, in fact, be a form of foreign currency.
Importantly, if Bitcoin is categorised as foreign currency, this may have consequences for the wider Australian legal and regulatory landscape that was not intended or contemplated. Specifically, we note that
Bitcoin as a foreign currency may have implications for:
· taxation purposes;
· the financial services regulatory regimes (including AFSL Licensing and AML/CTF obligations); and
· personal property.
One example of this can be found within section 10 of the Personal Properties Securities Act 2009 (Cth) where "currency" is defined as the currency authorised as a medium of exchange by the law of Australia or of any other country. This would arguably mean that security interests attaching to Bitcoin will need to be registered under the class of currency as opposed to intangible assets on the PPSR.
Practically for the cryptocurrency industry, Bitcoin as a foreign currency may have implications on how Digital Currency Exchanges conduct the facilitation of trading Bitcoin pairs or sending Bitcoin to other wallets as potential remittance services.
What we need to do in Australia
Since the inception of the crypto market, Australia has aimed to be proactive in terms of the regulation of digital assets and cryptocurrencies. However, clarity on the regulation of digital assets, and in particular Bitcoin, is needed now more than ever.
Although Australia itself does not consider Bitcoin as legal tender, the effect of El Salvador passing the Bitcoin Law has implications on the wider Australian legal and regulatory environment that is not yet known.
However, what is known, is that cryptocurrencies and digital assets are here to stay, and we must ensure that there is appropriate guidance and clarity on how digital currency exchanges, cryptocurrency traders, investors and enthusiasts should approach and deal with cryptocurrencies during this uncertain time. It may be that ASIC provides initial guidance and a “no-action” approach until the Australian Government makes a decision as to how these assets are to be regulated.
Salerno Law continues to monitor developments of digital currency adoption around the world and is at the forefront of advising on the regulatory environment of digital currencies in Australia. Should you require any legal advice or assistance in relation to cryptocurrency, please contact the cryptocurrency law specialists at Salerno Law.
By Krish Gosai
DISCLAIMER: This article is only meant to give you general information and should not be relied on as legal advice. Speak to one of our lawyers for more information.
Salerno Law is managed by Emma Salerno, Managing Partner and CEO, who has a wealth of experience from operating her own businesses across Australia as well as a range of in-house and commercial experience both in Australia and overseas.