The government of Bermuda is going to accept digital currency as payment for government taxes, fees and services.
From the beginning of next year, Bermuda will allow digital payments, provided they are licensed by the Bermuda Monetary Authority, in the form of stablecoins, which are pegged to the US dollar and derive their value from the fiat currency.
Premier David Burt made the announcement at the beginning of the Bermuda Tech Summit on Wednesday, saying the acceptance of the payments “will establish Bermuda as an example to other jurisdictions on how to adopt and benefit from the advancement of technology around digital currencies”.
With this decision, Burt said, Bermuda was leveraging its expertise in regulating financial services and its “bespoke regulatory framework around digital assets to provide an environment to drive and showcase financial innovation”.
Bermuda has passed specific legislation for initial coin offerings and established a regulatory sandbox whereby digital asset companies can launch their services on a limited scale to give supervisory authorities the opportunity to study the best regulatory approach.
The premier said that while there was lots of talk from legislators and regulators expressing their different views on how to approach digital currencies, there was also little action.
However, he stopped short of the idea of Bermuda issuing its own digital currency.
“For Bermuda the risks of launching our own digital currency outweigh the opportunities,” Burt said.
“However, we recognise there are experts who have been developing this technology to simply create a digital version of existing money that can be used to improve our financial system today.”
Such improvements would involve lower costs and increased access to financial services.
Bermuda’s initiative is supported by Circle and cryptocurrency exchange Coinbase, which last year launched USD Coin, a stablecoin pegged to the US dollar. There are currently about US$1 billion of USD Coins in circulation.
Circle is also the first company that obtained a full licence under Bermuda’s Digital Asset Business Act and in July moved its exchange operations to that country.
In a statement, Circle’s co-founder and CEO Jeremy Allaire said, “Bermuda’s Premier made a broader announcement today about embracing stablecoins as the future of the financial system, with a focus on innovations in fintech that can deliver value not just for Bermudians, but also globally via companies licensed under their Digital Asset Business Act.”
Because Bermuda’s economy already relies on a US dollar-backed currency, with its US dollar-pegged Bermudian dollar, he said it was natural that Bermuda would embrace USD-backed stablecoins for its government services.
“Through the [Digital Asset Business Act], Bermuda is one of the first countries in the world to create a comprehensive regulatory framework for digital currency and digital asset-based products and services, including licensing of firms operating payment systems using stablecoins. It will be interesting to see how other governments will respond to this fundamental innovation,” Allaire added.
Other companies supporting the venture with their stablecoins are Binance with BUSD; TrustToken with TUSD; Stably with USDS; and Hub Culture’s Ven with Ultra USD.
In addition, Burt noted, “On the open financial ecosystem front we have the support of Celsius Network, who offer lending services and pay interest on deposits; SALT, the first digital asset lending company and institutional custodian: MAPay a healthcare payments provider; Sablier, a payment solution provider; and Stablehouse, a stablecoin exchange provider.
He also mentioned ConsenSys, whose Codefi payments tool would “make it easy for governments and merchants to accept digital payments”.
Bermuda’s government believes there are many start-ups ready to develop future financial services on top of digital dollars and interested in becoming licensed under the Bermuda Digital Asset Business Act.
“We welcome any and all companies who are serious about developing the future of open financing to come to Bermuda and work with us to turn Bermuda into a global innovation sandbox and showcase to the world the potential of this exciting new technology,” Burt said.
He argued that Bermuda could showcase regulatory clarity around the industry to the rest of the world by using its “small, contained ecosystem as a place where foreign regulators and legislators can come to touch, see, use and ultimately understand the benefits of this revolutionary technology.”
A stablecoin is a form of cryptocurrency designed to offer price stability by linking it to a less volatile reserve asset or basket of assets, such as fiat currencies or exchange-traded precious metals.