Cryptocurrencies are unregulated in most jurisdictions and their legal nature has not yet been determined by legislation or case law.
Virtual or digital currencies display certain key features of money:
- They represent value and some (like Bitcoin) can be purchased or exchanged for a real currency equivalent.
- They can be used to make payment for goods or services.
- They are a unit of account in which debts and liabilities are expressed.
Despite these similarities, they are typically not regarded as money for legal or regulatory purposes. A key distinction is that real currencies are accepted as legal tender in their originating country and are considered a debt claim or liability of the central bank.
In South Africa, legal tender can only be issued by the South African Reserve Bank (SARB) in the form of bank notes and coins. The definition of ‘legal tender’ in the SARB Act does not include virtual currencies. By contrast, the issuing of e-money (a direct representation of real currency) is a regulated activity under the Banks Act 1990 and e-money is redeemable for physical cash or a deposit into a bank account.
The regulation of digital currencies is currently being considered by global authorities.
- The UK authorities intend to apply anti money-laundering regulations to digital currency exchanges. The US already does so.
- Germany and Sweden view digital currencies as commodities rather than currencies for tax purposes. This issue is currently before the European Court of Justice in relation to the application of VAT to Bitcoin exchanges. Pending a decision, the UK is treating Bitcoin and similar cryptocurrencies like any other form of payment for tax purposes.
The South African authorities have not expressed an intention to regulate digital currencies and the SARB has expressly stated that cross-border exchanges are not subject to exchange control regulations.
In September 2014, a joint statement was issued by the National Treasury, the South African Reserve Bank, the South African Revenue Service, the Financial Services Board and the Financial Intelligence Centre warning users about the unregulated status of digital currencies.
Our global cryptocurrency team has produced a guide to the legal and regulatory framework within which cryptocurrencies operate. The guide will be published in eight chapters. Click here to read the third chapter, The legal nature of cryptocurrencies.
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