Germany officially recognized the Bitcoin virtual currency as a “unit of account” which means that it is now legal tender that can be used in “multilateral clearing circles”, according to the Ministry of Finance in this country. Bitcoin is not classified as electronic money (e-money) or foreign currency, but rather “private money” subject to banking regulations in Germany.
A unit of account offers the chance to compare the value in time of goods and services and quantify the value added to the economic activity and can be represented by a coin without its physical existence. An example of a unit of account is given to special drawing rights (SDRs) of the IMF, used to assessing transactions, but they are not a payment instrument. Such payments shall be made in currency actually in circulation.
“We should have competition in the production of money. I have long been a proponent of Friedrich August von Hayek scheme to denationalize money. Bitcoins are a first step in this direction,” said Frank Schaeffler, a member of the finance committee of the German Parliament, which requested the legal clarification of Bitcoin.
Bitcoin is a online virtual currency that enables users to exchange credits for goods and services. Currently a Bitcoin is worth about $119.
The new provision states that the German authorities are preparing regulations to tax Bitcoin transactions. According to the Die Welt newspaper, the German government decided that Bitcoin classification means that the profits obtained by using virtual currency could be taxed.
Kathleen Brooks, research director at FOREX.com, told CNBC that the classification by the German government gives legitimacy Bitcoin to be used as a financial instrument in one of the largest economies in the world and it is a big step forward for Bitcoin movement.
“I think it is interesting that Germany has gone ahead and given legal status to the Bitcoin, as it could become an alternative to the euro if the single currency ever ceased to exist,” said Brooks. She added: “If the euro does go belly up the German authorities could potentially still collect tax if everyone started using the Bitcoin – that’s a good example of German forward-thinking.”
Schaeffler believes that Bitcoin’s success will depend on the fair treatment from regulators and the existence of a level playing field with the other currencies. She added that it would be wrong if the government will qualify Bitcoin as an instrument of money laundering, only because it is used for anonymous transactions.
Bitcoin regulation has been a hot topic in recent months. Department of Financial Services in New York sent subpoenas last week to several companies associated with Bitcoin, within a broader investigation of their practices. IMF and the Department of Homeland Security are conducting separate investigations.
In addition, Thailand has taken steps in July to ban the virtual currency, according to Bitcoin Co., a Bangkok website which operates Bitcoin transactions. The website stated that the government agencies denied its registration, which would have allowed people to use the currency legally.
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