The Isle of Man can often seem an anachronism, sidelined in international thinking. But its highly-publicized embracing of digital currencies may change this. By jumping ahead of the curve on prudent digital currency regulation, a tiny island in the Irish Sea may have become an example for the world – and all indications suggest that this tiny island is already reaping the rewards.
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Forget the skyscrapers of New York, the bright lights of Tokyo, broad Parisian avenues or the rain-drenched streets of London. If you’re looking for the future of digital currency, you might find the answer among the low-slung white cottages, wind-battered rocks and hardy folk of the Isle of Man. The island has long been famed for low-regulation, low-tax business practices – many businesses on the UK mainland have corporate headquarters there – and as a result, the CIA ranks Manx GDP by Purchasing Power Parity as third in the world. The island’s geographical location – in between the major UK and Irish financial centres of Manchester, Liverpool, Belfast and Dublin – and juridical position – neither a member of the EU nor a constituent country of the United Kingdom, yet with close economic and political links to both – have promoted this strong economic performance. But so too has prudent regulation.
The Manx government’s attitude to regulation has been reflected in their approach to cryptocurrencies. The island’s Financial Supervision Commission was quick to regulate digital currencies, in June of 2014, when Peter Greenhill from the Manx Department for Economic Development (DED) announced that a framework for the regulation of digital currencies would be announced in full by the end of July. The statement revealed the IoM Government’s stance would be to bring digital currencies into line with the Anti Money Laundering (AML) regulations that already existed, while promising not to introduce a full prudential suite of requirements until such a time as international standards were created and enforceable.
The lack of a full prudential regulation was the keystone of the Manx Government’s regulatory response. Given the size and relative newness of the cryptocurrency industry, any attempt to impose the onerous regulatory measures applied to established conventional currencies would run the risk of stifling growth and smothering innovation in the sector, while the rapid rate of technological and financial development evident among all major digital currencies would rapidly render any monolithic regulatory regime out of date.
But while the ‘light touch’ nature of the regulatory regime adopted by the IoM Government’s regulatory measures should be applauded Finding the ‘Goldilocks Zone’, what sets the Manx approach apart from other regulatory regimes is the speed and decisiveness with which the issue was tackled. Rule one on day one at the School of Economic Regulation would surely be that ‘uncertainty kills growth and stifles investment’. When regulators hesitate, investors hold back until such a time as the regulatory landscape becomes clear, for fear that investment would have to be withdrawn should the government adopt an unfavourable stance once they reach a decision.
The Isle of Man killed this fear within weeks, clarifying the government position, allowing investors to approach the issue with confidence, and causing digital currency business to flourish. The mushrooming industry on the Isle of Man serves as eloquent evidence for the effectiveness of governments jumping in ahead of the curve on digital currency regulation. Governments and regulators globally have on the whole failed to follow this example, but once the effect of this regulatory regime on Manx economic growth becomes clear, the Isle of Man’s example may become harder to ignore. Setting aside the doubtlessly short-lived phenomenon of ‘Bitcoin Tourism’, the influx of tech-savvy travellers visiting the island to experience the money of the future in action, the indications are that the growing number of digital currency businesses setting up on the island are attracting significant inward investment.
The Isle of Man can often be seen as a ‘Lost World’, an island frozen in time. It’s unique constitutional arrangements, thousands of years of history, and laid-back, small-town feel often leaves the island sidelined in the minds of many. However, if the digital currency experiment is a success, Man could become a global example, first for its neighbours in the UK and Ireland, and eventually for the world. Digital currencies may well be the future, and, as ever, the little guys have seen it first.