Bank of Israel mulls regulating, recognizing Bitcoin virtual currency

Justice Ministry, Bank of Israel discuss implications of virtual currency, particularly susceptibility for laundering, illicit transactions.

Bitcoin 370 (photo credit: REUTERS/Jim Urquhart)
Bitcoin 370
(photo credit: REUTERS/Jim Urquhart)
The Bank of Israel is contemplating how to deal with the virtual currencies such as Bitcoin, mulling whether and how to regulate or recognize them, Army Radio reported Tuesday.
“The Bank of Israel is following global development in the field, with an emphasis on policy steps and regulation, and examining the need for regulation of one kind or another regarding currencies that are electronic, virtual or similar,” a central- bank spokesman told The Jerusalem Post Tuesday.
According to Army Radio, the Justice Ministry met with the Bank of Israel last week to discuss the implications of the virtual currency, particularly its susceptibility for laundering and illicit transactions.
“We strive for a dialogue with the regulators to deal with the Bitcoin issue in Israel,” Yonatan Roash, a member of a pro-Bitcoin group, told Army Radio in an interview. “The use of Bitcoin in Israel is only growing. I think that the regulators understand that Bitcoin is not going away.” The amount of shekels being swapped for Bitcoins each month may have already reached tens of millions, he said.
The virtual currency, created by a mysterious hacker called Satoshi Nakamoto (who has since disappeared), has made headlines in recent weeks as it breached the $1,000 mark for the first time, a meteoric rise from the $70 it was trading at just five months earlier. The currency has no central bank and no centralized authority governing its use, which makes it appealing as a virtual, cross-border currency.
But it has its drawbacks as well. As its price fluctuations demonstrate, it is not yet a reliable store of value, an important feature of functional currency.
The inability of any one body to control the supply of Bitcoins exacerbates the problem, though proponents also note that no central bank could ever print more Bitcoins and inflate away their value.
Its near anonymity makes it attractive for illicit transactions as well, a problem that government oversight may be able to address.
The Bank of Israel isn’t the only central bank trying to deal with the revolutionary currency. US Federal Reserve Chairman Ben Bernanke sent a letter to Congress in late November saying the virtual currency “may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system.”
Shortly thereafter, the deputy governor of the People’s Bank of China, Yi Gang, said the bank could not yet recognize Bitcoin as a legitimate currency, but it would keep its eye on the currency for the long run.