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Roula Khalaf, editor of the FT, selects her favorite stories in this weekly newsletter.
The writer is founder and CEO of Digital Auto Labs and Visiting Scholar on Financial Technology at the Law Faculty of the University of Georgetown.
In 1758, an English mail coach who transported tickets was stolen. The thief used one of the stolen tickets to pay a room in a inn. The original owner of the ticket asked the Bank of England to stop payment of the note, with which the innkeeper demanded. The case of Race Miller v He rose to the Judge of the highest court in England, who ruled that the innkeeper was the legitimate owner of the ticket.
The judge, Lord Mansfield, said that if a merchant always had to wonder if there could be a upward property interest in a ticket, then the notes could not be used to grease the trade wheels. Therefore, a ticket made to the bearer and paying demand must be treated as a currency, a means of change.
Fast progress until today and a popular form of cryptocurrency called Stablecoins faces similar challenges to those faced by tickets in 18th -century England.
The stablecoins are designed to maintain the value of a sovereign currency, such as the US dollar, and are backed by currency reference assets. It has been shown that they have the main characteristics of the currency: they are a unit of account, a reserve of value and a means of change. The total value of stablcoins in circulation has reached $ 240 billion.
However, possible claims owned by the previous owners could hinder the use of stablocoins as digital money.
The legislation is very necessary. The United States Congress is considering two bills that will regulate Stablecoins: the Senate Genius Law and the stable law of the Chamber. However, neither of them clearly defines the use of stablocoins as money under private commercial law, fiscal law and accounting rules.
The case of the eighteenth -century stolen English ticket serves as a basis for much of the United States Payment Law. The Lord Mansfield ruling is enshrined in the “Take-Free” rule in the uniform commercial code, laws that govern commercial transactions. In 2022, article 12 was added to address digital assets. If the stablecoins are considered “controllable electronic records”, the “Take-Free” rule of article 12 is applied, which means that the interests of a upward creditor are cut.
However, only 27 US states. UU. So far they have adopted article 12. For the rest, Stablecoins could be treated as “general intangibles”, which means that prior property claims could remain attached, which makes them a poor means of poor exchange.
It is also important how the stable of fiscal rules are discussed. If Stablecoins continues to be classified as “property” as digital assets such as Bitcoin and Ethereum, then profits and losses must be informed to the internal tax service. As Stablecoin payments become more widely used, this could result that millions of reports on personal and commercial payments are presented to the government.
In addition, if you use Stablecoins to buy something, it could be considered a “elimination event” subject to capital gains tax, which could lead to an onerous and confusing tax treatment for consumers and companies.
One way to address the problem of reports is to ensure that the established ones are always bought or sold exactly to the value of a currency, which means that there are no profits or losses. To do so, Stablecoin legislation must require strict reserve requirements that will guarantee their value and segregation requirements that will protect against creditors in the case of the bankruptcy of the issuer.
Another way is that Congress reduces tax reports requirements. There is precedence: personal gains of less than $ 200 of foreign currency transactions are exempt. However, for Stablecoins to be an effective means of payment, companies would also have to benefit from any exemption from reports adopted and the report threshold must be collected significantly.
As the stables become increasingly common in traditional trade, accounting rules will also import. It is not clear whether Stablecoins should be informed as cash equivalents or as financial instruments under accounting rules. The way they are classified will have a significant impact on how companies report their holdings and use of Stablecoin.
Ultimately, if the stablecoins are not clearly defined as a form of money, whether an equivalent or negotiable instrument in cash, it could make them little practices as a means of exchange and would defeat the purpose of potentially significant legislation.
The president of the Federal Reserve, Jay Powell, declared in his June 2023 testimony to the Financial Services Committee of the House of Representatives that “we see the Stablecoins payment as a form of money.”
Digital money should be recognized more widely as a great leap in the evolution of the currency.
