Israel’s central bank has said it will not recognize cryptocurrencies like bitcoin as a currency nor a foreign currency as it does “not fit the legal definition” nor “fill the main functions of currency.”
In a speech on Monday, Bank of Israel deputy governor Nadine Baudot-Trajtenberg revealed the central bank’s official position on the recognition and regulation of cryptocurrencies like bitcoin. The central bank official also admitted fielding a number of public complaints about banks making it difficult to move fiat money from their accounts to purchase cryptocurrencies while adding it would be “difficult” to issue regulations for cryptocurrencies.
Pointedly, she stated:
“Bitcoin and similar virtual currencies are not a currency, and are not considered foreign currency. The Bank of Israel’s position is that they should be viewed as a financial asset, with all that entails.
The official was speaking at a finance committee meeting specifically convened to address the increasing adoption and use of cryptocurrencies.
Bitcoin Doesn’t Fit “Legal Definition” of Currency
“Bitcoin and similar currencies do not fit the legal definition of a currency or foreign currency,” Baudot-Trajtenberg said, arguing that they do not fulfill the core functions of a currency. The measure of confidence from its users is a critical element of a currency, the central bank said, stressing that this confidence only comes from a currency deemed legal tender with legal backing.
“[A currency] fulfills the functions ascribed to it in the economic literature—a unit of account, an mean of payment, and stability that enables it serve as a store of value. None of these exist with Bitcoin or similar currencies, which are characterized by higher volatility, difficulty in making transactions, and a lack of certainty regarding the parties that stand behind it.”
Banking Blockade? Deal With It
Addressing customer concerns about using their fiat money to buy cryptocurrencies, she stressed that banks face compliance risks, particularly when fiat funds swapped into cryptocurrencies “may be used to launder money, finance crime and so forth.”
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A citizen who transfers his fiat money “to an exchange where virtual currencies are sold may later transfer the money anonymously to any unreliable party in Israel or abroad,” the deputy governor reasoned, claiming the bank will have to bear responsibility in such a scenario. This, she added, is why banks must define their own parameters in providing services to customers interested in adopting cryptocurrencies. As such, she absolved the central bank of weighing into the matter and having a say in how banks manage their customers’ cash, when they’re interested in cryptocurrencies.
“[A]s far as we know, no banking regulator anywhere in the world has issued guidelines to the banking system on how to act in relation to customers’ activity in virtual currencies.”
Bitcoin Could Be “Central to Our Financial Lives,” Says Panel Chairman
While the central banker stressed that the government bears no responsibility for investors in bitcoin and other cryptocurrencies, committee members from the panel urged authorities to develop regulations to embrace cryptocurrencies quickly.
According to Israeli publication Haaretz, panel chairman Moshe Gafni notably said of bitcoin and emerging financial technologies:
“There seems to be a great possibility that they [cryptocurrencies] will become central to our financial lives.”
The chairman called on the central bank and other regulators to turn in a report on how to develop a regulatory framework for bitcoin and other cryptocurrencies within a month. Details of an upcoming pivot to regulating – in essence recognizing – bitcoin and cryptocurrencies are currently unknown.
The central banker’s remarks on cryptocurrencies come in the weeks following a marked threat by Israel’s capital markets regulator who proposed a ban on cryptocurrency companies trading on the Tel Aviv Stock Exchange, Israel’s only public stock exchange.
Meanwhile, Israeli authorities are also working on a state cryptocurrency dubbed the ‘digital shekel’ that will be identical in value to its fiat currency.
Featured image from Shutterstock.
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