Ukraine's local chapter of the Bitcoin Foundation has spoken out against a recent statement by the central bank concerning the legal status of bitcoin in the country.
In a document issued last month, the National Bank of Ukraine (NBU) says it considers bitcoin “a money substitute that has no real value, and cannot be used by individuals and legal entities in Ukraine as a mean of payment”.
The central bank continues that bitcoin is a “high risk factor” in financial transactions and that the institution has no responsibility for transactions made with the use of cryptocurrency and any potential losses incurred by the contracting sides.
The warning echoes a number of similar statements made by central banks from around the world, including Argentina, Columbia and Thailand, along with many others.
Foundation reacts
However, there has been some confusion over whether the bank meant to imply that bitcoin use is actually illegal or whether it was merely saying the digital currency is not legal tender.
Bitcoin Foundation Ukraine has recently given its opinion on the matter, saying that the NBU’s statement does not contain a direct prohibition of cryptocurrency use, but is merely a reminder that the national currency, the Ukranian hryvnia, is the only official means of payment.
The chapter said in a statement:
"The NBU (mistakenly) believes bitcoin is a surrogate currency and has no intention to recognise, regulate, delegalize bitcoin. In other words, this means bitcoin is not forbidden nor illegal, but the NBU would not recommend using it, and would not … provide any support.”
Ruslan Khorin from the BFU told CoinDesk that the Ukrainian government has little understanding of the advantages offered by cryptocurrencies and that the country’s unstable political and economical situation could be key to the future of digital currencies in Ukraine.
However, “the situation is, in general, rather unstable, and both the [banning] of cryptocurrencies or their regulation could happen in the future,” Khorin said.
According to the BFU, it is also currently unclear to the country's authorities what kind of taxation, if any, should be applied to bitcoin transactions, and, as a result, it "would certainly be difficult to operate a national bitcoin exchange without external clearing connections."
Boost to bitcoin?
Ukraine's financial woes have deepened since the outbreak of the military conflict with pro-Russian forces in the east of the country.
In October 2014, the country’s inflation rate was at 19.8%, compared to 0.5% back in January, while Ukraine's gross domestic product (GDP) contracted by 5.1% in the third quarter of this year, according to data released by the NBU.
On 13th of December, the Ukrainian hryvnia's interbank rate fell to 15.9 against the US dollar, which represents a devaluation of almost 50% since the beginning of the year, as reported by the local media.
Local observers say that the Ukrainian banking system is becoming increasingly insolvent, with customers withdrawing their deposits amid widespread fears of a financial slump.
Could this unstable financial situation provide a boost for bitcoin, if it is perceived as a safer store of value than the hryvnia?
Khorin said:
“The difficulties endured by the national currency, which has lost more than 50% of its value in comparison to the US dollar could force such a situation that the demand for cryptocurrencies by Ukrainians will increase. But, at the same time, old fashioned politicians might judge it as a threat to the current system.”
Despite opposition to digital currencies by some politicians, Khorin indicated that the outlook for bitcoin is favourable, but that “there is still very much to be done” to raise popular awareness in the broader population.
Furthermore, the grey area that exists regarding taxation of cryptocurrencies would be a hurdle for bitcoin trading, possibly ruling out the appearance of Ukranian exchanges without external clearing connections. Other cryptocurrency startups and developers would likely experience difficulties too, he added.
Kiev, Ukraine, image via Shutterstock