Legal Frameworks Governing Digital Currencies: A Comparative International Study

Abstract

The emergence of digital currencies has disrupted traditional financial systems and sparked regulatory debates across the globe. While some countries embrace cryptocurrencies through progressive frameworks, others enforce strict limitations or outright bans. This paper provides a comparative analysis of the legal and regulatory approaches to digital currencies in key jurisdictions, including the European Union, United States, China, and the United Arab Emirates. By evaluating current policies, enforcement mechanisms, and future trajectories, this study highlights best practices and identifies legal challenges to global financial integration.

1. Introduction

Digital currencies, particularly cryptocurrencies and central bank digital currencies (CBDCs), are redefining the contours of modern finance. Their decentralized architecture, capacity for near-instantaneous transactions, and independence from central monetary authorities have presented new opportunities and challenges. In response, governments worldwide have devised divergent regulatory strategies aimed at balancing innovation with financial stability and consumer protection.

The lack of harmonized global standards has created a legal patchwork that complicates cross-border cryptocurrency operations and limits regulatory clarity. This article examines the legal frameworks of four representative jurisdictions—the European Union, United States, China, and the United Arab Emirates—to identify common elements, key differences, and emerging trends.

2. Literature Review

Existing literature on digital currency regulation can be broadly categorized into three streams: legal classification and definition, regulatory compliance, and the socioeconomic impact of regulation.

• Legal Classification: Zetzsche et al. (2020) highlight the ambiguity in classifying digital assets as commodities, securities, or currencies, which affects their treatment under financial law.

• Regulatory Compliance: Arner et al. (2017) examine global AML/CFT (Anti-Money Laundering and Countering the Financing of Terrorism) compliance challenges, particularly the inadequacy of legacy laws in dealing with blockchain-based transactions.

• Policy Impact: Recent studies emphasize how overly restrictive or permissive policies can either stifle innovation or foster illicit activity (Houben & Snyers, 2018).

3. Methodology This paper adopts a qualitative comparative legal analysis methodology. Primary legal texts, policy documents, regulatory announcements, and secondary academic sources were analyzed for each jurisdiction. The analysis focuses on:

• Definitions and scope

• Regulatory authorities

• Licensing and compliance

• Consumer and investor protection

• AML/CFT provisions

4. Comparative Analysis

4.1 European Union (EU) The EU has made significant strides with its Markets in Crypto-Assets Regulation (MiCA), approved in 2023. MiCA introduces a single licensing regime across member states and mandates transparency, consumer protection, and AML/CFT compliance.

• Regulatory Authority: European Securities and Markets Authority (ESMA)

• Approach: Balanced; regulation without banning

4.2 United States (US) The US regulatory landscape is fragmented. While the SEC treats some cryptocurrencies as securities, the CFTC classifies others as commodities. State-level regulations, like New York's BitLicense, add further complexity.

• Regulatory Authorities: SEC, CFTC, FinCEN, state regulators

• Approach: Case-by-case enforcement; lacking unified framework

4.3 China China has taken a hardline approach, banning all private cryptocurrency transactions and mining. Instead, it focuses on the development and rollout of the digital yuan (e-CNY), a state-backed CBDC.

• Regulatory Authority: People’s Bank of China

• Approach: Prohibitionist; CBDC-driven

4.4 United Arab Emirates (UAE) The UAE has positioned itself as a crypto-friendly hub through its Virtual Assets Regulatory Authority (VARA) in Dubai and proactive legislation in Abu Dhabi Global Market (ADGM).

• Regulatory Authorities: VARA, FSRA (ADGM)

• Approach: Progressive and innovation-driven

5. Discussion

The comparative analysis reveals a spectrum of regulatory attitudes. The EU and UAE have adopted structured frameworks encouraging innovation, while China restricts private sector involvement in favor of state control. The US struggles with regulatory overlap and uncertainty, which may hinder innovation and investor confidence.

Common regulatory themes include:

• The need for clear definitions and classifications

• Licensing regimes to ensure operator accountability

• Emphasis on AML/CFT controls

• Balancing innovation with systemic risk management

6. Conclusion

Digital currencies pose complex regulatory challenges. A comparative study reveals that jurisdictions with clear, adaptable legal frameworks (e.g., EU, UAE) are better positioned to foster innovation while maintaining financial integrity. Future research should explore the potential for international regulatory harmonization and how supranational bodies like the IMF or BIS might support such efforts.

References

Arner, D. W., Barberis, J., & Buckley, R. P. (2017). Fintech and Regtech: Impact on Regulators and Banks. Journal of Banking Regulation, 19(3), 1-14.

Houben, R., & Snyers, A. (2018). Cryptocurrencies and blockchain: Legal context and implications for financial crime, money laundering and tax evasion. European Parliament.

Zetzsche, D. A., Buckley, R. P., Arner, D. W., & Barberis, J. N. (2020). Regulating Libra: The Transformative Potential of Facebook’s Cryptocurrency and Possible Regulatory Responses. University of New South Wales Law Research Series, 20(2), 1-48.

Ras Al Khaimah Tourism Development Authority. (2024). Official tourism press releases and strategy documents. RAKTDA.

European Securities and Markets Authority (2023). Markets in Crypto-Assets Regulation (MiCA).

People’s Bank of China (2021). Statement on the Prohibition of Cryptocurrency Transactions.

Securities and Exchange Commission (2022). SEC Enforcement Framework for Digital Assets.

Virtual Assets Regulatory Authority (2023). Virtual Assets Regulation in Dubai and the UAE.