The banking sector in the world is becoming increasingly unstable; this is also felt in the capital of Europe’s largest economy, Germany. Berlin intends to allow the country's banks to accept cryptocurrencies for storage and sell them in less than a month from now. What does this mean - DeCenter understands.
How did the directive help?
On November 29, a publication was published in the Handelsblatt newspaper, in one of the leading business publications in Germany, on the successful reading of a new bill in the Bundesrat (the upper house of the country's parliament, the Bundestag) that opens the right for banks to sell and store bitcoin from January 1, 2020 and other cryptocurrencies. Now, for the new bill to get legal force of the current law, it must be approved by the authorities of 16 federal states of the country, which in the case of this bill should not cause difficulties: there is a consensus in the political and business elite of the country on this issue.
Indeed, a corresponding message appeared on the Bundesrat’s website stating that the adopted document received the status of “approved law”, and its developers were three committees of the German parliament - on finance, international affairs and economics.
The current “cryptocurrency step” of the German authorities was formally pushed by the Fourth Directive of the European Union on combating money laundering, which entered into force. Its logic required that cryptocurrencies be given a legal status, since this is what makes it possible to effectively counteract various criminal schemes with them, rather than if they are in the legal “shadow”.
German Ministry of Finance: cryptocurrencies function as money
It is worth noting that in Germany, cryptocurrencies were not the first to become a topic that the authorities thought about. So, on February 27, 2018, the Ministry of Finance of the country published a document stating the need for a clear definition of bitcoin. To do this, the regulator was based on the decision of the European Court of 2015, in which it was noted that if some instrument or asset acts as a financial intermediary in transactions for the sale of goods or services, then VAT should be recovered from such transactions. Since the tax authorities did not object to additional income to the budget, the Ministry of Finance of the country concluded that bitcoin and other cryptocurrencies should be considered as an analogue of classical money - the euro. At the same time, when exchanging an analogue of money for fiat and vice versa, there is no need to pay VAT, regardless of whether such transactions are carried out by individuals or legal entities (for example, crypto-exchanges) by buying cryptocurrencies on their own behalf. Charging VAT also does not apply to those involved in cryptocurrency mining.
Full clarity and openness of cryptocurrency regulation
Thus, the preparatory basis for the further integration of cryptocurrencies has already been done. It is not surprising that German lawmakers allowed banks to directly buy and store cryptocurrencies, such as stocks or bonds, by removing the corresponding restrictive paragraph in the bill. Moreover, banks do not have to resort to the services of financial intermediaries for this, however, on one condition: if the credit institution has permission to store securities and operations with them.
As a result, a new term appeared in the German code of practice - “cryptocurrency value”, which is defined as “a digital image of value that has not been issued by the central bank or any government agency”, but “is accepted as a medium of exchange or payment [when handling goods and services], and is also considered an object for investment. ” An important point is that German lawmakers decided not to mix the concepts of “cryptocurrency value” and “electronic money”. At the same time, they refused to classify the tokens in any way, and in particular, to divide them into those that have signs of securities (security) from those that are user (utility).
In addition, it is customary to use during registration of the crypto business the same terms for passing approval procedures with government bodies as for other types of entrepreneurship. This is a very important point, given that since the beginning of 2020, any business in Germany that is related to cryptocurrencies should contact the German Federal Financial Supervisory Authority (BaFin).
The Association of Banks of Germany Bankenverband BdB (representing the interests of more than 200 credit organizations of the country and 11 sectoral organizations of the financial industry) positively assessed this opportunity, noting that such integration will better deal with criminal violations when working with cryptocurrencies. At the same time, consumer advocates are worried about how much the country's economy is aware of all the risks that exist when investing in cryptocurrencies.
Attention to detail The
movement of Germany towards cryptocurrencies is another feature. The appearance in June of the white paper of the Libra cryptocurrency, which is promoted by the Swiss Libra Association, created on the initiative of the American social network Facebook, caused a lot of discussion in the world. Bankenverband BdB did not stand aside and on October 30 issued a statement stating that the EU needed a “programmable digital euro” and admitted that the development of the Libra project prompted such thoughts of the organization’s members.
At first glance, steps towards the adoption of cryptocurrencies in Germany look contradictory. So, on October 28, an appeal under the eloquent title “Cryptotokens is not real money” appeared on the Bundestag website, which was a response of the German government to a request for cryptocurrency status, which was received in the Cabinet by the Free Democratic Party of the country.
The document says that bitcoin and other cryptocurrencies can only realize the functions that are characteristic of fiat on a “limited scale”. At the same time, fiat functions mean a medium of exchange, payment, savings, as well as the ability to be a counting unit - all that the German Ministry of Finance saw in cryptocurrencies in 2018. Thus, the regulator does not deny that cryptocurrencies can also perform these functions, but with the caveat mentioned above. It is also concluded that those cryptocurrencies for which high price volatility is observed cannot be a means of saving.
Stablecoins undoubtedly solve this issue, but the German government is ready to oppose their treatment if they are perceived as an alternative to state money and will jeopardize the existing monetary system. Regarding Libra, the government leaves a big question in this document, since it intends to follow up the implementation of this project in practice, and then make a decision.
Germany prepares for the collapse of the EU and the eurozone
The main conclusion that follows from this important statement by the German government: it is not against state stablecoin. Since the European Central Bank (ECB) determines the monetary policy for 19 countries of the Eurozone, the point is that the possibility of launching a digital euro does not leave the agenda, because this idea is also supported by Bankenverband BdB, but the ECB is against it.
Hypothetically, we can consider the scenario that in Germany the government does not exclude the launch of a digital currency only for its country. But such a scenario is possible only in the event of the collapse of the eurozone through digitalization, when each country begins to launch its own digital currencies.
However, the search for alternatives for the euro has been talked about since the summer of this year in the political elite of another country in the eurozone, the third largest GDP in the region, Italy. At the same time, the cryptocurrency option is not excluded, especially if you take into account the fact that at the end of October the results of a study were published stating that in Italy payment for goods and services with bitcoins surpassed the use of Visa and Mastercard credit cards in popularity.
This means that the likelihood of a scenario according to which Germany may eventually acquire a “digital brand” cannot be considered zero. Even despite the fact that in September the ECB, guarding the interests of the euro, in the person of the then head of Mario Draghi, critically reacted to the idea of the Estonian government to launch its own stablecoin.
The Bundesbank gave a start to the life of cryptocurrencies in Germany
In any case, the ability of banks to work with cryptocurrencies will come in handy for Germany in implementing any course of events, with the exception of the option to prohibit the circulation of cryptocurrencies, which looks like the least likely scenario from both a political and practical point of view.
The decisive role was that the legislators decided to take this step, although the German government does not have a single point of view regarding cryptocurrencies, was played by the fact that the Bundesbank moved to a neutral-positive position regarding cryptocurrencies. This became known on July 22, when the regular monthly Bundesbank newsletter was published. It concluded that there are more positive moments from the turnover of cryptocurrencies than negative ones.
In this connection, July can be considered the starting point when the Bundesbank informed the coalitions of the main parties in the Bundestag (Christian Democratic Union (CDU) of Germany and the Christian Social Union (CSU) that he would not mind the development of cryptocurrency legislation. This is evidenced by the publication the CDU / CSU website has a number of news and news content that positively assesses the prospects for blockchain and cryptocurrencies, while emphasizing the need to develop stablecoin for the eurozone.
Thus, the legislators, the Ministry of Finance, the Bundesbank and Bankenverband BdB are ready to open the country for cryptocurrencies, in order to first of all comply with the Fourth EU Directive, that is, “bring to light” the participants of the cryptocurrency turnover when they contact banks. This was stated by one of the crypto-analysts, known as Rhytmtrader. This is also indicated by a document of the German Ministry of Finance, published as early as October 19: officials spoke out sharply against the existence of a circulation of such cryptocurrencies, in which anonymity of participants in transactions may remain.
We write Bitcoin, we keep the stablecoin in mind.
However, it is obvious that there is a “steam engine” on the siding, namely the idea of launching its own national cryptocurrency (CBDC), which should push other digital currencies out of circulation. And if Germany fails to create its own cryptocurrency, the prohibition of other cryptocurrencies is not excluded. At least, with regard to Libra, such an announcement has already been made: on September 13, the governments of Germany and France agreed that “no private structure should take on those rights to implement monetary policy, which are one of the cornerstones of the sovereignty of states” .
And again, this statement does not trace a negative attitude towards state stablecoins, and there is no criticism of decentralized cryptocurrencies, for example, bitcoin. This is due to the realization that it is impossible to prohibit such digital assets - certainly on a global scale. Moreover, stopping the Libra private cryptocurrency project is also very difficult.
How cryptocurrencies will help the banking business in Germany
But there are moments that suggest that the Bundesbank and other key participants in the formation of the German economic development plan have decided to go towards providing freedom to banks in working with cryptocurrencies.
Firstly, not only in the world more and more countries are aware of the inevitability of mass distribution of cryptocurrencies, but the competition for attracting investments of crypto-entrepreneurship is only intensifying. Secondly, the head of the Bundesbank, Jens Weidmann, is a fierce critic of the ECB's policy, disagreeing with the strategy of the regulator's negative base rate. This line has already led German banks to risk losing investors, since until recently only those who placed deposits in the country's credit institution with deposits in the amount of more than € 100,000 had a negative deposit rate, then a precedent arose when Bavaria, one of the banks was forced to switch to a similar policy with deposits (starting even from € 1). Thus, depositors are guaranteed to receive at the end of the term of the deposit a smaller amount than they brought to the bank.
The thing is that it is banks that turn out to be the weakest link in the German economy: they risk losing a significant part of their liabilities in the face of an outflow of depositors. This means that other areas of work may subside, and the income of the banking sector will decrease.
While it is not a question of the fact that German banks will accept cryptocurrency deposits, paying interest and providing compulsory insurance. However, financial transactions with “cryptocurrency values” permitted on January 1 will lead to banks earning income that the ECB de facto deprives them of. It is no coincidence that one of the largest banks in Germany, Deutsche Bank, analyzing the challenges for financial markets in 2020, did not include cryptocurrencies in the list of 20 most important risks. The banking sector in Germany is ready to work with a new type of asset, if only to just not disappear.
Vladislav Ginko
2 December 2019