This week in the US, the Department of the Treasury issued a fascinating guidance document regarding virtual currencies, and in the US, virtual currency exchangers or administrator are subject to the same rules of record-keeping and fiscal integrity that apply to other real-world currencies:
The definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies. Accepting and transmitting anything of value that substitutes for currency makes a person a money transmitter under the regulations implementing the BSA.
This is squarley aimed at addressing the concerns, shared by governments globally, regarding centralised virtual currencies. Pre-paid access or credits don’t fall in to the same category of ‘exchanges’ – so this guidance doesn’t appear to apply to Amazon’s Coins due to launch in May. It is focussed on the exchange and movement of funds, across borders. Movements that were untraceable by authorities, and lacked accountability. The US guidance means that if you’re an exchange, issuing and exchanging virtual currency, you have the same responsibility as a bank who are required to report transactions of a certain size or value.
The US Treasury document, as well as setting out guidelines and interpretations sows the seed of credibility for virtual currency, up to this year, it was considered by many a fringe, tech-led community for small value transactions and donations, The timing of the guidance document is interestingt; everybody’s talking – from the Wall Street Journal to BBC’s Newsnight. If you had millions of Cypriot pounds on deposit in a Cypriot bank this week, and had the opportunity to exchange it for millions of of virtual coins, would that be a prudent move? Could funds on deposit, in any country, that were illicitly earned be moved to an untraceable, viable virtual currency with no accountability for the exchange to report it to anyone? Well, yes, they could. The logic of the US Treasury’s guidance makes sense, and we will inevitably see other central banks issuing similar instructions.
Such a move shouldn’t effect the promise that virtual currency holds. For instance, a simple example, virtual currency can help eliminate currency considerations and empower local retailers to sell to cross border buyers. Twenty percent shifts in Sterling or Dollar or Euro become irrelevant to one-currency-online shoppers. Global web, global commerce. But there will genuinely be those who seek to subvert and exploit the system. Admittedly, most financial crime we’ve seen in the last five years has been committed by men in good suits, but this isn’t really about financial crime, it’s about preventing the hiding of money acquired as a result of other crime.
I have a conservative view regarding online privacy, and last week on Newstalk’s Down To Business we were joined by the Irish Data Protection Commissioner, Billy Hawkes – with a very firm message that Online Privacy can’t be ignored, even by small business. Privacy and regulation are important components in making the web work – really work. And FaceBook and Google for instance, are leading us towards a more authenticated web, which can only be good if achieved in its purest form. An authenticated web is a safer web and transacting online will be be more secure. For virtual currencies to succeed, they need security and regulation. But most of all like any physical, legal-tender currency, they need confidence, yours and mine, and the US Department of the Treasury may just have given us some.