China to set up its own virtual currency
Banks currently banned from 'Bitcoin-related risks'
The People's Bank of China (PBOC), China's central bank, hopes to launch its own virtual currency to cut the cost of handling paper money and to give the government more control of the country's money supply.
A research team has been looking into digital currencies since 2014 and has achieved some encouraging initial results. This team should now "set up clearer strategic objectives for launching digital currencies, overcome the technological barriers ... and aim for an launch of the central bank's digital currencies," the PBOC said (link in Chinese).
The PBOC said that a virtual currency would reduce money laundering and tax evasion, and make economic activity more transparent.
The bank will work with Chinese and foreign financial institutions to identify how the currency can work alongside traditional card-based payment systems, it said.
Virtual currencies are not a new concept in China, said Beijing-based finance expert Helena Chen of Pinsent Masons, the law firm behind Out-Law.com. The country was the largest trading market for bitcoin until 2013, when the People's Bank of China issued a 'Notice to Prevent Bitcoin-related Risks', prohibiting domestic banks from trading in the currency, Chen said.
The Court of Justice of the European Union (CJEU) ruled in October that the exchange of traditional currencies for virtual currency bitcoin is exempt from tax in the EU.
The CJEU, Europe's highest court, said that although the activity constitutes "the supply of services for consideration" under the VAT Directive, it should be considered exempt from VAT under provisions contained in the legislation. The Directive exempts transactions concerning "currency, bank notes and coins used as legal tender", subject to some exceptions, from VAT.
The UK decided last year that it would not charge VAT on bitcoin trading.
However, anti-money laundering rules so apply to digital currency exchanges in the UK.