DIGITAL CURRENCIES RECOGNIZED AS LEGAL TRANSACTIONS IN CALIFORNIA
July 20, 2015
In the minds of many, the introduction and passage of Assembly Bill 129 was long overdue in a society where the use of digital currency has become commonplace.
Essentially, the language of the new law repealed the old prohibition contained in section 107 of California’s Corporations Code against using any currency but U.S. dollars in commercial transactions, affirmatively legalizing digital currency.
THE NEW LAW
Effective this year, the new law allows the use of the currencies of other nations and, most significantly, digital currencies when purchasing goods and transmitting payments in California. By recognizing the legitimacy of using alternative payments systems between businesses and customers, the new revisions legalize the already existing uses of reward points, coupons, and other types of digital currencies, like Bitcoin.
Additionally, the amendment was particularly aimed at legalizing “community currencies” which are created and used by members of small communities in efforts to boost local business. While the language of the recently ratified bill does not identify such digital currencies as “legal tender,” the law’s passage is still considered a big step towards recognizing new and innovative methods of doing business in the state of California.
The revisions to the California Corporations Code do not include instructions on how these alternative currencies are to be regulated; therefore, the passage of Assembly Bill 129 raised a host of new issues concerning the licensing of companies engaging in the business of digital currency.
Recently, Assemblyman Matt Dababneh, D-Encino, addressed some of these concerns by introducing Assembly Bill 1326, which contains a potential set of formal licensing regulations. As it is currently written, the bill prohibits anyone from engaging in the business of digital currency without a license issued from the California Department of Business Oversight, unless the individual falls within one of the listed exemptions.
ASSEMBLY BILL 1326
If passed, this bill would require the providers of digital currencies to follow the same types of licensing procedures required for companies who engage in the business of money transmission. Namely, the individual or corporation would need to maintain a series of high quality investments, such as government securities or state bonds, of equal value to the digital currency that the licensee has made available on deposit for customers.
Banks would be exempt from this requirement, as would any merchants or consumers using virtual currency only in the purchase or sale of goods or services. However, agents of licensed digital currency businesses would be unable to claim an exemption.
If you have any questions regarding how the new amendments will affect you or your business, please contact a dedicated Morgan Hill business law attorney at The Law Offices of Steven E. Springer to set up an appointment for a free 20-minute consultation in Morgan Hill, San Jose or Fremont.