El Salvador now becomes the first country in the world to make a cryptocurrency legal tender and adopt it as an official national currency, and what this means for use of Bitcoin by Vietnamese citizens.
As I’ve written before, Vietnam currently views cryptocurrency as a prohibited form of payment (see Cryptocurrency in Vietnam). The State Bank of Vietnam (SBV) has repeatedly made it clear that it does not recognize cryptocurrency or any digital currency as legal tender. Although a recent program initiated a pilot program for e-money (see Mobile Money Pilot Program in Vietnam), that is essentially a means of digitizing hard currency without opening a bank and any value is backed by actual cash. Cryptocurrency, on the other hand, has no underlying asset which backs it and its value is created largely by the willingness of individuals to purchase it. Mining, which is the process of creating new cryptocurrency, is essentially the use of computing power for unrelated tasks that create no actual asset.
In Vietnam, legal tender is considered cash and defined as non-cash payment methods. Under the law, the latter includes cheques, payment orders, collection orders, bank cards and other payment instruments as prescribed by the State Bank. Non-cash payment instruments out of this scope are illegal. Cryptocurrency falls outside the scope of defined non-cash payment instruments and is therefore not recognized as a means of payment. Nor has the government of Vietnam or the SBV provided an avenue for the use of cryptocurrency as legal tender.
Internally, then, Vietnam has no legal means for using cryptocurrency as legal tender, but what about through foreign exchange?
Foreign exchange is a means for exchanging a country’s currency for another country’s currency. It involves a process of valuation of each currency against the other. Once that value is established it is possible to determine the difference in purchasing power of each country’s currency and then make an exchange. (Forgive my ad hoc definition.) So long as a country has a legitimate currency then, in theory, another country should recognize it and be ready to exchange its own currency knowing it can use that currency and its power to purchase in exchange for other, perhaps more valuable, currencies.
In practice, this doesn’t always happen. When I was in Laos it was difficult to exchange Laos Kip outside of Laos itself. The Kip was weak and undesirable as coming from the poorest country in ASEAN. Only Thailand and some locations in Vietnam would offer an exchange for Kip. The Thai Baht was preferable and the US dollar much preferable. For with either one could travel and not face the difficulties of a weak currency or of trying to exchange that currency in a country that wanted nothing to do with it. In reality, then, not every currency is freely exchangeable.
In Vietnam, foreign exchange comprises a list of half a dozen or so different possibilities, but most relevant are “currencies of other countries or the common currency of Europe and other common currencies used for international or regional payments” also referred to as foreign currency. Technically, then, the SBV should recognize all foreign currencies, no matter how undesirable they may be, and exchange them for Vietnamese Dong.
This last week a particular wrinkle presented itself that may test this theory.
On 9 June, the Congress of El Salvador passed a bill that will recognize Bitcoin as legal tender. Furthermore, Bitcoin will float against the US dollar. This means that its value will be established in comparison with the US dollar rather than, say, Brazilian or Mexican currency. El Salvador now becomes the first country in the world to make a cryptocurrency legal tender and adopt it as an official national currency.
A country, then, now has Bitcoin as its currency. And the currency of other countries (besides Vietnam) is recognized as foreign exchange by the government of Vietnam and the SBV. Under the letter of the law, therefore, Vietnam must now recognize Bitcoin as exchangeable for Vietnamese Dong. Whether they actually do is a different question, but assuming they follow their own laws then certain consequences will follow.
First, Vietnamese citizens will now be able to use VND to purchase Bitcoin. At the current moment, Vietnam is the second-largest investor in Bitcoin by country, behind Nigeria. That Bitcoin has been purchased through various means, the specifics of which I’m not aware. However, the SBV has issued legislation preventing e-wallets or banks or credit institutions or card issuers from allowing Vietnamese citizens to use their resources for the completion of fraudulent or illegal acts, specifically the purchase of cryptocurrency. It is necessary, then, for Vietnamese to use their VND to purchase foreign currency, transfer that currency out of the country for a legitimate purpose, and then offshore make a purchase of cryptocurrency.
Now that Bitcoin is the lawful currency of another country, the purchase of foreign currencies in a foreign exchange transaction is no longer illegal or fraudulent. Vietnamese citizens can now use VND to purchase Bitcoin, in theory.
Second, as a corollary, the SBV can now regulate the purchase of Bitcoin by Vietnamese citizens. One of its primary responsibility under the law on the state bank is to control foreign exchange. Current controls on the amounts of foreign currency that can be brought into the country and exchanged for VND will apply to Bitcoin. Proper procedure would require that Bitcoin now can only be purchased through licenced foreign exchange enterprises, either banks or exchange centers. Purchasing Bitcoin through e-wallets or trading floors would remain technically illegal as an impermissible method of making foreign exchange.
Third, once a Vietnamese citizen lawfully obtains Bitcoin in a legitimate foreign exchange transaction, they may now possess it without fears that the government will cease their accounts or penalize them for having a cryptocurrency, a fear that currently many in the country have. So long as the Bitcoin is purchased through approved channels, its possession should not be challenged. However, the flipside of this is that Bitcoin that has previously been purchased through illegitimate channels may now be deemed as smuggled currency and seized by customs.
There may be further consequences of this landmark event, I’m simply throwing out some things that occur to me, but there is most certainly going to have to be some reaction on the part of the government of Vietnam and the SBV. Whether that action is to declassify El Salvador’s currency as acceptable foreign exchange or to finally give Bitcoin some degree of legitimacy in the country remains to be seen, but the law as currently written would suggest that the latter might actually happen.
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