A report produced by the University of Auckland based on research funded by the New Zealand Law Foundation has called for New Zealand to develop a central bank-issued cryptocurrency, thriving cryptocurrency exchanges and the ability for businesses to trade in GST-free cryptocurrency.
It says all these are needed if New Zealand is to enjoy "the vast potential benefits from this technology."
The report, “Regulating Cryptocurrencies in New Zealand”, warns against the Government attempting to ban the use of cryptocurrencies and argues the Government should instead actively support New Zealand becoming a blockchain and financial technology hub.
The report says the opportunities created by blockchain are so compelling that countries such as Sweden and the Marshall Islands are looking to introduce their own central bank-issued cryptocurrencies, and large corporations such as IBM are already using cryptocurrencies to shift value around the world.
The authors argue that fast-moving technological advances and sensible regulation will address most concerns commonly raised about all types of currencies, including security, fluctuations in value, and potential for criminal abuse such as money laundering and financing terrorism.
They point out that the UK Treasury has found that criminals use the current banking and corporate/trusts systems more than cryptocurrencies, with billions of dollars laundered through banks every year.
University of Auckland's Associate Professor Alex Sims, who led the research, said New Zealand had fallen behind countries that it liked to compare itself with, including Australia, the United Kingdom and Japan".
"So now we need to live up to our reputation as nimble, agile and innovative and rapidly follow the lead of those other countries. That’s the only way we can maximise the opportunities that blockchain offers," she said.
Sims said many New Zealand cryptocurrency exchanges, where people can purchase cryptocurrencies with New Zealand dollars, have trouble getting bank accounts, or open accounts only for the bank to close them down.
“Banks say they’re taking a risk-averse stance, but in the guise of protecting consumers they may be exposing them to even greater risk, as it forces them to go offshore to buy cryptocurrencies, where they have little or no protection," she said.
"In addition, the rules and procedures for setting up cryptocurrency exchanges are not as clear as they are in Australia and Japan.”
Another roadblock identified in the report is that businesses that accept payments in cryptocurrencies and New Zealand exchanges are potentially subject to GST – meaning they pay GST twice, on the currency and on the goods and services.
The report’s recommendations are:
• The New Zealand Government should continue to allow cryptocurrencies to be traded as well as used for the payment of goods and services within and outside New Zealand.
• Greater advice and protection for consumers on cryptocurrencies by the Financial Markets Authority (FMA) and Department of Internal Affairs (DIA) and others.
• The Reserve Bank of New Zealand (RBNZ) trials the creation and issuance of a New Zealand cryptocurrency.
• New Zealand-based cryptocurrency exchanges be encouraged, with clear and detailed guidance provided as to their anti-money laundering/counter-terrorism financing obligations by both the DIA and FMA.
• Cryptocurrency exchanges that comply with these safeguards must have access to bank accounts with New Zealand banks.
• Merchants must be able to accept cryptocurrency payments for under $100 or payment through a compliant exchange.
• GST be removed from cryptocurrencies used to pay for goods and services.
• The Inland Revenue Department accepts cryptocurrencies for the payment of taxes.
• New Zealand should follow countries such as the UK and Australia in creating a regulatory sandbox and ensure that the regulators work alongside fintech companies.