Bitcoin Neither A Currency Nor A Payment Instrument Under Finnish Law
January 30, 2014
Bitcoin is regularly giving headaches to financial regulators all over the globe. As the legislature in most countries, if not all, is customarily lagging behind the technology, one of the most intriguing questions related to Bitcoin, legally speaking, is can it be chalked down as a currency, a form of electronic payment, such as Paypal for example, or something else. One of the countries which recently tried to tackle this challenge was Finland.
Weighing in on how to treat bitcoins, the Bank of Finland concluded that bitcoin fails to meet the currency test, considering the definition of an official currency as set out in the law. Bitcoin, furthermore, cannot be considered a payment instrument either, since the law stipulates that a payment instrument must have an issuer responsible for its operation, and bitcoin is not regulated by a central bank, government or any other entity. The Bank of Finland, therefore, decided to treat bitcoin as a commodity, which means that Finnish citizens are still allowed to use it for payment of goods and services, but any investment into the currency is at risk of the investors themselves. From the tax law point of view, bitcoin mining gains are to be considered income and taxable as any income generated via capital gains, though losses are not deductible.
Compared to certain countries, Finland has so far embraced a liberal attitude towards digital currencies, which is perhaps not surprising due to the popularity of such currencies in certain circles. This is showcased by the fact that, in December 2013, Finland became one of the first European countries in which a permanent automated teller machine for buying bitcoins was installed. The ATM is located at a Helsinki Railway Station record store that accepts payment in bitcoins. Customers can buy bitcoins by punching in their bitcoin-wallet identifier and inserting euros. The virtual currency is then transferred digitally to their wallet online.
However, Paeivi Heikkinen, head of oversight at the Bank of Finland, believes that the state should involve itself more in the supervision of virtual currencies, since the changes in value of these currencies are currently totally unregulated and vulnerable to news, speculation and hoaxes. Currently there simply might not exist the need for regulation, since the economy revolving around bitcoin and its peers is relatively small. However, if the phenomenon continues to grow, it might start causing side effects and pose threats to fiscal or monetary stability. Eventhough it is certain that those earning substantial amounts of money from speculation would be against a sound regulatory framework, it might actually contribute to a global adoption of bitcoin, since it would bring more certainty and diminish any existing ambiguities.
Jasmina Mutabžija
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