By Akshita Angrish, a 3rd-year B.A.LLB. student of Ideal Institute of Management, GGSIPU, New Delhi.
INTRODUCTION
International Trade Law comprises of rules and customs appropriate for conducting trade between nations[i]. The development of International trade laws started when countries opened up their doors for other nations. When people of more than one nation are involved in international trade and the same is required to be controlled by some rules and regulations, the same set of regulations are termed as International trade laws. With the world indulging in trade with different nations, the payment methods are also evolving. Countries are becoming more digital through online modes of payment and prefer being cashless. One of the most recent examples of such digital payment is crypto-currencies. The worldwide payment system has been transformed by the introduction of virtual currencies to a scale that was considered absurd just a few years ago. Crypto-currencies are the digital demonstrations of value created by means of cryptography, which do not exist physically and work as a medium of exchange[ii]. There are both positive and negative impacts of crypto on International Trade Law, which have been discussed in this article.
HOW CRYPTO IMPACTS CROSS-BORDER TRANSACTIONS?
International trade or Cross-border transactions fundamentally refers to trade between different countries. The law that governs that trade is known as International trade law. It comprises of rules that countries and businesses must follow in order to do business across borders. It is vital to first understand how crypto-currencies can influence international trade before we indulge in its impact on international trade law.
International trade before crypto-currencies
Before the crypto-currency was developed, the international transactions were carried forward at a very high cost. Cryptocurrency generally involves the exchange of currencies because no one currency works in all countries. The exchange rate, that is determined for this purposes keeps fluctuating and is not constant. So, the main problems that arise are lack of a standard exchange rate, no secured payments, and a high amount of taxes remaining, while trading cross-border[iii] remains constant while trading cross-borders.
Benefits from crypto in international trading
Virtual currency can help to trade internationally in many ways. Some of them are listed below:
· As the crypto-currencies are a peer to peer review system, therefore, no taxes exist in the transaction and the fee remains very minimal[iv].
· Secured payment can be ensured as there is an accurately controlled payment channel that directs all the outs and ins of payments in case of interaction trade. In order to avoid the risks of payment bouncing problems, the parties making transaction are required to have money presented upfront[v].
· As discussed earlier, there is a problem with exchange rates as people trade in different countries and each nation’s currency has different values with a different exchange rate. This problematic scenario can be tackled through the mode of digital payment, i.e., through virtual currencies. There is a standard exchange rate offered by the crypto-currency, and it is accepted by almost every trader dealing with international transactions[vi].
· Crypto-currencies provide for fast movement of money as it hardly takes 10 minutes for the authentication of payment in the block-chain system, which makes the money move speedily from buyer to seller[vii].
INTERNATIONAL TRADE LAW AND CRYPTO-CURRENCY
With the growing users of crypto-currency as a mode of payment in international trading, the law governing the trade has to be altered and modified. Digital currencies affect the volume of transactions because a large number of people prefer it because of its numerous advantages and benefits. This has an enormous impact on the international trade laws. In many nations, crypto-currency is not legal, and hence, dealing in it is not permitted by the government of the concerned country. This currency is far more substantial for the transaction but, at the same time, it challenges the existing provisions of international trade laws.
Briefly, the issues that arise due to the introduction of cryptocurrencies and people using it as an alternative mode of payment majorly concern:
Ø TAXES
The prime concern that implicates with respect to crypto in cross border transactions is taxation. There are diverse tax laws in different countries around the globe. It is of utmost significance to check whether a transaction is taxable or not. In Canada, whenever there is a transaction in crypto-currency for trading purposes, the same is required to be considered under a barter system and the aggregate of the article should be considered for the scheming of taxes[viii].
Ø SECURITY LAW
Each nation has its protocols to regulate the securities market. As in the case of India, crypto-currency cannot be considered as a security because they do not fit under the definition of securities under The Security (Contract) Regulation Act, 1956[ix]. Crypto-currency is not a security and therefore, the laws of security of a country cannot be extended to the same.
Ø TRADE AGREEMENTS
Another significant part of international trade law is trade agreements. Countries have developed agreements that consist of all the relevant terms and conditions while trading with other nations. They include rules and regulations related to payments, taxes, receipts, etc. which are decided by keeping in view all the requirements of the countries indulging in trade. With the introduction and development of digital money, these agreements need to be altered. The agreements have defined rules with respect to international transactions. But now, with virtual currencies, these rules cannot be applied in their original form.
Ø MONEY LAUNDERING
Laws regulating Money Laundering also need to be re-checked when it comes to the use of digital currencies. The activity in which people move the currency from one country to another in an illegal way is known as money laundering. In India, The Prevention of Money Laundering Act was passed on 17th January 2003. Again, if India wants to promote the development of crypto-currencies in the country and permit its people with using it in international transactions, it has to amend certain money laundering laws. It can be categorized under ‘designated businesses and profession[x]’.While establishing the anti-money laundering guidelines and while regulating currencies in the nation[xi], the government of Australia has pursued to ponder the concept of Japan.
The international trade law is required to be amended in such a way that it clarifies the legality of crypto-currencies. Every nation has its own laws on this subject and all countries deal with it in a different manner that leads to a problem in international trading through digital currency.
CONCLUSION
Crypto-currency is a very influential form of currency. It plays a vital role in international transactions. It has both negative as well as positive impacts on international trade as well as the laws governing these transactions. The international trade laws that are already in existence were made by keeping the fiat currency into consideration, which is why these laws need to be amended in order to ensure smooth transactions and to eliminate all the possible confusion. Recognition of crypto-currency by different countries will be the first step for the same.
REFERENCES
[i]Library, University of California Berkeley School of Law. "International Trade Law". (available at: www.law.berkeley.edu) [ii]Andy Greenberg (20 April 2011). ‘Crypto-currency’. Forbes. Archived from the original on 31 August 2014.(available at: https://www.forbes.com/forbes/2011/0509/technology-psilocybin-bitcoins-gavin-andresen-crypto-currency.html#76b4ec3b353e) [iii]Smriti Chand ‘International Trade: Features, advantages and disadvantages of international trade. International Trade: Features, Advantages and Disadvantages of International Trade.’ Your Article library (available at: https://www.yourarticlelibrary.com/international-trade/international-trade-features-advantages-and-disadvantages-of-international-trade/26009) [iv] ‘Advantages and disadvantages of crypto-currency’ 30 July 2020, Ccoingossip(available at: https://ccoingossip.com/advantages-and-disadvantages-of-cryptocurrency/#:~:text=Advantages%20of%20Cryptocurrency.%201%20Easy%20to%20Use.%20You,5%20You%20Can%20Do%20Unlimited%20Transactions.%20More%20items) [v] Ibid [vi] Ibid [vii] Steven Buchko ‘how long do bitcoin transaction take’ Coin Central 12 Dec 2017 (available at: https://coincentral.com/how-long-do-bitcoin-transfers-take/#:~:text=As%20mentioned%20earlier%2C%20a%20Bitcoin%20transaction%20generally%20needs,of%20Bitcoin%20has%20caused%20congestion%20on%20the%20network.) [viii] ‘Guide for crypto-currency users and tax professional’ Canada Revenue Agency, Government of Canada (available at: https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/digital-currency/cryptocurrency-guide.html) [ix] Securities (Contracts) Regulation Act, 1956, Section 2(h) [x] Prevention of Money Laundering Act, 2002, Section 2(a) [xi] ‘New Australian laws to regulate crypto-currency provider’ Austrac, Government of Australia, 11 April 2018 (available at: https://www.austrac.gov.au/new-australian-laws-regulate-cryptocurrency-providers)
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