International Monetary Fund (IMF)
Country : Bulgaria
Delegate : Franz Augustine C. Mallari Topic : Addressing the Emergence of
Cryptocurrency
“Consumers buying virtual currencies should be aware (that) there is a high risk and that they will lose a large amount, or even all of the money (they) invested.”
- Bulgarian National Bank ________________________________________
Cryptocurrency, though marked by its innovation, is entailed by the words volatile and unpredictable (Houben & Snyers, 2018). Digital currency has become a center of controversy in the fields of economics and policy-making since the conception of the first decentralized cryptocurrency, Bitcoin, in 2008 (Chohan, 2017). Brito and Castillo (2013) described Bitcoin as “revolutionary” due to its removal of the intermediaries with ledgers (e.g. PayPal and Mastercard) and the double-spending problem that comes with the removal of the intermediaries. To add to this, several advantages of Bitcoin and other cryptocurrencies over the traditional payment system were enumerated such as pseudonymity, cheaper transaction costs, the potential to combat poverty and oppression, and a stimulus for financial innovation (Brito & Castillo, 2013). However, even though cryptocurrency has been described as revolutionary and innovative, it presented conflicts that stirred debates about whether this young technology should be widely utilized or not. Some of the challenges presented by cryptocurrency are volatility, the danger from security breaches, and criminal usages (Brito &
Castillo, 2013) such as money laundering and tax evasion (Houben & Snyers, 2018).
Cryptocurrency mining is also an environmental issue when it was found that it consumes 58.93 TWh per year which is equivalent to that of Switzerland’s power consumption in a year (Baraniuk, 2019). Moreover, the definition of cryptocurrencies as money is still highly controversial. The reasons stated have led different nations to respond differently to the digital currency’s emergence. Some countries such as Bolivia, Iran, and Nepal have banned the use of cryptocurrencies altogether while countries such as Australia, Canada, and the Isle of Man have already enacted different regulations regarding digital currency (Library of Congress, 2020).
With this in mind, it must be noted that policies must be put in place in order to regulate cryptocurrencies and make its use safer.
As a member of the European Union, Bulgaria stands with the organization’s warning of the dangers of using cryptocurrency due to its volatility and unpredictability (Library of Congress, 2020). Though Bulgaria is still in the process of crafting different policies for digital currencies, the country believes that regulations must be made in order to control its adverse and criminal effects. In the meantime, the Bulgarian government has already taken different steps to address issues in cryptocurrency such as issuing warnings on the possible adverse effects of investing in cryptocurrency (Reuters Staff, 2018), busting criminal activities related to digital currency (Tassev, 2018; Sofia Globe Staff, 2017), and imposing a 10% tax on cryptocurrencies which are treated as income from the financial assets’ sales (“Cryptocurrencies by country”, 2017).
Pursuant to the acts mentioned, Bulgaria proposes the following propositions to deal with the issues concerning the emergence of cryptocurrency:
1. Decentralized-Indirect Cryptocurrency Regulation Plan (D-ICR Plan)
The proposed plan of Nabilou (2019) promotes the utilization of banking and payment systems as “surrogate regulators” under the government’s guidance to keep the decentralized nature of digital currencies. With the D-ICR Plan, banking and payment regulators could facilitate the interaction between fiat and digital currencies. The surrogate regulators could also help in controlling the volatility of cryptocurrencies through the formulation of different banking measures for handling the aforementioned.
2. Cryptocurrency Crime and Terror Watch (CCTW)
Since digital currencies have been known as a way of transferring money for terrorism and other criminal activities (Houben & Snyers, 2018), it is important to form an agency that will be responsible for preventing crimes related to cryptocurrencies. CCTW will be responsible for investigating unlawful activities regarding the use of cryptocurrencies worldwide.
3. Renewable Energy for Mining Cryptocurrencies (REMiC)
The industry of mining cryptocurrencies has been causing environmental problems due to its energy consumption. This plan aims to direct the energy coming from different renewable sources to the mining of cryptocurrency to reduce its environmental impacts.
Bulgaria believes that cryptocurrencies must be regulated and that policies must be put in place in order to prevent the adverse effects it presented. Thus, we hope that the aforementioned proposals will continuously be built upon and improved in the upcoming
Bibliography:
Baraniuk, C. (2019, July 3). Bitcoin's energy consumption 'equals that of Switzerland'. BBC.
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Brito, J. & Castillo, A. (2013). BITCOIN: A Primer for Policymakers. Retrieved from https://www.mercatus.org/system/files/Brito_BitcoinPrimer.pdf
Chohan, U. (2017). A History of Bitcoin. Retrieved from https://dx.doi.org/10.2139/ssrn.3047875
Cryptocurrencies by country. (2017). Thomson Reuters. Retrieved from https://blogs.thomsonreuters.com/answerson/world-cryptocurrencies-country/
Dimitrova, K. (2010). Monetary and Fiscal Policies in Bulgaria: Lessons from the Historical Record. SSRN Electronic Journal. DOI: 10.2139/ssrn.1622186.
Houben, R. & Snyers, A. (2018). Cryptocurrencies and blockchain: Legal context and implications for financial crime, money laundering and tax evasion.
https://www.europarl.europa.eu/cmsdata/150761/TAX3%20Study%20on%20cryptocurrencie s%20and%20blockchain.pdf
Library of Congress. (2020). Regulation of Cryptocurrency Around the World. Retrieved from https://www.loc.gov/law/help/cryptocurrency/world-survey.php#skip_menu
Nabilou, H. (2019). How to Regulate Bitcoin? Decentralized Regulation for a Decentralized
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Tassev, L. (2018, January 20). Onecoin Offices Raided in Sofia, Servers Shut Down.
Bitcoin.com. Retrieved from https://news.bitcoin.com/onecoin-offices-raided-in-sofia-servers- shut-down/