Companies can pay salaries in cryptocurrencies, rules New Zealand Tax agency. This will be the first time that a country has legalized cryptocurrency as a salary.
In a report by the Financial Times, New Zealand has made history by allowing companies to pay their employees in cryptocurrency. The country’s Tax agency in a ruling made it legal to pay salaries in cryptocurrencies.
Salaries may be paid in cryptocurrencies, but they have to be pegged to one fiat currency. This move is a major impetus to the Libra Virtual currency.
After many months of wrangling with US government officials over the dangers of Libra, New Zealand’s position on cryptocurrency is a welcome break for Facebook. This might even put the Libra discussion back on track. Since the US hearings, Libra has taken a back seat with some even claiming it will never take off.
How does it work?
Companies are allowed to pay their employees in cryptocurrencies in New Zealand. However, the type of cryptocurrency that is allowed is a stablecoin.
Stablecoins are cryptocurrencies where the value of a token is tied to the value of a fiat currency, for example a US dollar. The Libra is a type of Stablecoin that is tied to the dollar. Another famous one is Tether. Some stablecoins are tied to gold or industrial metals.
Stablecoins are preferred in this case because of their, well, stability. Money doesn’t have intrinsic value, it is only a representation of some value. Usually this value is connected to the country that prints it. For instance, the US dollar is connected to the US economy. If the economy crashes, the value of the dollar will crash too.
Economies change rather slowly. So the value of most currencies are more or less stable overtime. For instance, the US dollar to the UK pound has remained relatively stable.
However, one of the main arguments against cryptocurrencies has been the high volatility. The value of cryptocurrencies fluctuate wildly. Bitcoin was $9500 yesterday and rose to $10,200 this morning. There is no guarantee it will hold or rise further or even fall drastically.
If a company pays a salary of 4000 New Zealand dollars, it will be 0.25 bitcoin (BTC) right now. However, tomorrow 0.25 BTC may not be 4000 New Zealand dollars.
What does cryptocurrency fluctuate?
All currencies fluctuate. In a complex market, calculations of value are constantly changing. Because cryptocurrencies are new, their value fluctuates due to sudden investments or market trends. However, they will settle after they go mainstream. Till then, we will have to rely on stablecoins.
Why does the community dislike stablecoin?
Stablecoins are tied to fiat currencies, which are tied to economies. Bitcoin, the first cryptocurrency, was made to be a parallel currency during the time of the Economic Meltdown of 2008. Stablecoins defeats the purpose of a cryptocurrency. A cryptocurrency is a peer to peer exchange that is independent of any economy. Bitcoin can be exchanged with anyone in the world. No transaction fees and no banks are required.
By pegging a cryptocurrency to fiat currency, the community believes stablecoins undermine the technology. Banks and other authorities can control and manipulate the crypto economy using stablecoins.
However, there is no getting around the fact the stablecoins are seen as more reliable than cryptocurrencies. At best cryptocurrencies are viewed as high risk, high return investments.