US proposes changes to definition of currency

US proposes changes to definition of currency

By Benson Toti - min read

The US Federal Reserve and Fincen are also looking into expanding the definition of money to include cryptocurrencies

The US Federal Reserve, alongside the Financial Crimes Enforcement Network (Fincen), are currently open to feedback on their proposal to lower the threshold at which financial institutions must collect and retain information on fund transfers

The joint notice on the rule change proposal revealed that the two US agencies are currently considering a new threshold for international transactions. It will raise the new threshold for international transactions to be set at $250, down from the current $3,000. The rule for domestic transactions will remain unchanged.

The press statement also revealed that the two agencies are looking to expand the definition of money to include transactions related to cryptocurrency. This is because the current rules only apply to fund transfers involving banks.

“The agencies are also proposing to clarify the meaning of money as used in these same rules to ensure that the rules apply to domestic and cross-border transactions involving convertible virtual currency (CVC).”

While the agencies acknowledge that cryptocurrencies lack legal tender status currently, the rule change proposal suggests that digital currencies are to be treated as money. They argue that the virtual currencies are already working as a medium of exchange that has an equivalent value as currency, or already acts as a substitute for currency.

The agencies argue that the proposed rule would make it clear that both payment orders and transmittal include any instruction by the sender to transmit CVC or any digital asset having the legal tender status to a recipient. This indicates that if the proposals are passed, it would “supersede the present definition of money for purposes of the Recordkeeping and Travel Rules”.

The two agencies explained that they were considering lowering the threshold to $250 after they noticed an increase in volumes of transactions that involved lower values and how this may pose a threat to US national security.

“The Agencies have considered Suspicious Activity Reports (SARs) filed by money transmitters, which indicate that a substantial volume of potentially illicit funds transfers and transmittals of funds occur below the $3,000 threshold,” they stated.

The Fincen in particular looked into data that was derived from approximately 2,000 SARs, filed by money transmitters between the years 2016 and 2019. The agency noticed that there was a disproportionate number of small value transactions relative to larger value ones.

The two agencies also referred to the 2015 National Terrorism Finance Risk Assessment in concluding that terrorist financiers and facilitators are using “low-dollar transactions” to reach their goals.