[2018-01-09] Israel Central Bank Refuses to Recognize Bitcoin as a Currency

[moriskarlov]

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.

She added:

“[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.”

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.

She stated:

“[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.

https://www.ccn.com/israel-central-bank-refuses-recognize-bitcoin-currency/

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[Carlton Banks]

“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."

Lol

Currency didn't need any legal backing for thousands and thousands of years. It didn't need it when legal backing was introduced either, it's simply a way of taking the power of the currency business away from regular people, i.e. creating a monopoly on who can produce tokens of value for trading.


Central banks are terrified, and justifiably: their currencies do a whole lot to enrich themselves and their close buddies in the financial and commodities markets (and, supposedly, many important Central Banks are in fact owned by large corporate banks, although the precise identity of the shareholders is a secret to the public they ostensibly serve).

What are they afraid of? That the people of the world stop recognising their money product as currency. When the bond markets finally figure out that sovereign debt has no buyers except the central bank that issued it, inflation is going to go crazy, worldwide. Trillions of extra currency have been printed since 2008, sometimes tripling or quadrupling government debt over 10 years, where the debts in 2008 took 100 or more years to build up. This can only cause huge price inflation. This is happening already really, the massive 10 year rally in stock and real estate is an indication that the value of central bank currencies is going down, not that the value of stocks and real estate is going up.

[eyesopen]

i dont think any country apart from MAYBE Venezuela will recognise a decentralised and unrugulated currency as its legal tender.
every country will want control of their own finances,
they wont get that with crypto . . . thankfully
  

[Carlton Banks]

i dont think any country apart from MAYBE Venezuela will recognise a decentralised and unrugulated currency as its legal tender.

This highlights one serious problem with central bank currencies.

Central banks want to push the idea that legal tender law is somehow the magic that makes money valuable. The Venezuelan currency, as well as countless other government-run currencies throughout history, prove something else: controlling the (supposedly capitalist) economy is why centrally administered currencies are pushed on the public, nothing at all to do with legitimacy or value.


Having an organisation to manage a currency will always end up as a mistake. All such centrally-run money systems have always failed. The fact that the dollar, yuan and euro have lasted so long is actually a reflection of how bad things are, not how good they are.

Every dollar, euro or yuan that exists is owed back to the central bank, and interest is charged on that debt. The debt is traded on financial markets, but it doesn't take a genius to figure out it's not ever repayable, the math is simply impossible. But financial traders are so cynical that they have always been willing to buy the tranches of debt that can be realistically repaid (i.e. newly issued short term loans). But that can't last forever, especially when governments are printing and borrowing money faster than ever before. Like I said in my previous post, the central banks that printed the money in the first instance are buying over 90% of government debt these days, so the point where no-one really believes that governments can pay all this money back has already been reached.

Central banks always claimed they will eventually sell the government debt, that they're not just printing money to kick the can down the road. Everyone is still waiting for them to start selling.

[Gotottack]

These issues have long been settled in that governments worldwide have the utmost prerogative to accept only innovations that are at par with its national objectives. Hence, this topic of national concern should not be subject to further scrutiny. I am assuming, though, that the government of Israel is all for the good of majority. If that is the case, then, who are we to decide for them?

[J. Cooper]

I really don't need the Central bank of Israel to recognize bitcoin as a currency. And I'm pretty positive no central bank will do this because they would essentially be shoothing themselves in the foot.

“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."

Currency didn't need any legal backing for thousands and thousands of years. It didn't need it when legal backing was introduced either, it's simply a way of taking the power of the currency business away from regular people, i.e. creating a monopoly on who can produce tokens of value for trading.

I always cringe when central banks claim that bitcoin isn't backed by anything and yet their delusional fiat is.

[Carlton Banks]

I always cringe when central banks claim that bitcoin isn't backed by anything and yet their delusional fiat is.

Well, it kind of is backed by one thing: government violence, forcing you to pay for things you don't necessarily want. But of course, this is a strange kind of value-backing, the holder can't redeem taxes to the value of the bank note (lol).

It's called "government" when they do it. It's called a "protection racket" when anyone else does.