For about a year, the Senate Committee on Banking, Trade and Commerce has been studying the use of digital currencies, including their risks, threats and advantages. The Committee is expected to issue its report sometime this spring.
The Committee has received presentations from a wide range of witnesses, including government agencies, digital finance experts, academics and bitcoin companies. On February 26th, I had the privilege of being one of those witnesses together with Elliot Greenstone of Davies Ward Phillips Vineburg. We were asked to keep our opening remarks to just s few minutes so that the Committee could ask us for our views on certain legal issues that they have been addressing.
In order to prepare for my presentation, I took the time to review all of the prior testimony. Essentially, the testimony has come down to those that believe that some aspect or other of digital currencies needs to be regulated and those that believe that regulation, at least at this early stage, will stifle innovation, not only with respect to digital currencies, but also with respect to the cryptography.
The area of regulation that has attracted the most discussion is anti-money laundering and terrorist financing. In particular, many witnesses mentioned a concern that the anonymity offered by digital currencies provides a means by which money laundering and terrorist financing can go on undetected. In this regard, the Committee has heard conflicting opinions about whether it is possible to remain anonymous when transacting in bitcoin, perhaps the most well know of the digital currencies. As we know, amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act have already been introduced that will require businesses that deal in virtual currencies be registered under the Act. The amendments address, at least in part, the anonymity concern by requiring that the businesses that convert conventional currency into and out of digital currencies to identify their customers.
In addition to the AML issue, the Committee has been introduced to a variety of issues relating to digital currencies. Most of these issues ultimately pose the same question, are consumers in need of protection. Consumers, it has been observed, benefit from a vast array of regulations when they transact in Canadian dollars. For example, their deposits are protected by deposit insurance and by the regulations that apply to the banks that hold those deposits. Further, their payments are assured through the regulations that apply to the Canadian Payments Association and the participants in the payments systems it operates.
I recommended to the Committee that at this stage of their inquiry it was important not to get lost in the detail of the vast regulatory structure that has been created to support the use of and reliance on the Canadian dollar. Rather, I recommended that the Committee focus on the policy objective of the original regulation and whether digital currencies present the same policy concerns. For example, Canada decided only in 1935 to adopt one national currency issued by the Bank of Canada. Prior to that, several banks issued their own version of bank notes. Why then did the country move to a national currency? Would the objectives that were served by moving to a national currency be impaired by the existence of digital currencies? Essentially, I suggested that the Committee not just look at the trees but try to focus on the forest.
The Committee is scheduled to conclude its study some time this spring. For anyone interested in digital currencies, I highly recommend reading the testimony of the Committee’s hearing. Of course, it will be extremely interesting to see what they are able to conclude.
A link to the Committee website can be found here.