France tries to rein in Bitcoin market
The French Ministry for Finance wants to increase the regulation of virtual currencies, in an attempt to fight financial crime. EurActiv France reports.
Tracfin, France's anti-money laundering unit, published a report on 11 July calling for greater regulation of virtual currencies, the most famous of which is Bitcoin, and to make their use is more transparent.
Bitcoin is a way of making transactions that bypasses the banking sector, and according to the authors of the report, it makes it easier to launder money and cover up illegal activity. In order to reduce these risks, the report proposes to limit virtual currency flows and the anonymous status of users. It also wants a cap on the amounts used to carry out electronic payments.
“It poses a risk to users and the security of the financial system” said Jean-Baptiste Carpentier, director of Tracfin, claiming that Bitcoins can be used to launder money and commit fraud.
According to the report, there are two bitcoin distributors in France but others on the horizon. On 2 and 3 July, French authorities arrested three people suspected of running an illegal Bitcoin trading network. This was the first arrest of its kind in Europe.
User-protection above all
The Ministry says that virtual currencies emerge from technological challenges and a distrust of the traditional financial sector. “These currencies are quickly emerging from the shadows and are not just for geeks,” said Michel Sapin, French Minister of Finance.
However, the “Bitcoin” phenomenon is still a small player on global financial markets. It is currently valued at between $5 and $8 billion. “It is a large amount in absolute terms […], but it is still tiny on the scale of major currencies’ money supply which is counted in thousands of billions,” said Sapin, adding that “there is over €900 billion worth of coins and banknotes in circulation alone".
In March 2014, France's then-Minister of Finance, Pierre Moscovici, called on his European counterparts to put Bitcoin on the EU agenda.
Moscovici’s priorities were twofold. He wanted to protect users from financial and judicial problems, and tackle illicit use of virtual currencies to carry out fraud, launder money and even fund terrorism.
EU suspicious of “bitcoin” phenomenon
On 4 July, the European Banking Authority (EBA) discouraged European financial institutions from buying, holding or selling virtual currencies while the market was still not regulated. According to the EBA, the risks are greater than the potential benefits of faster and cheaper transactions. The EBA called for the regulation of virtual currencies and backed the “creation of ‘scheme governing authorities' accountable for the integrity of a particular virtual currency scheme and its key components.”
After the EBA’s announcement, the EU Commission said it would examine ways of introducing greater regulation to the sector, particularly in order to fight financial crime.
“It is imperative to act quickly on the issue. The potential for money laundering and to fund terrorism is too great to ignore,” said Chantal Hughes, spokesperson of Michel Barnier, the Internal Market Commissioner.
According to Michel Sapin, EU ministers of finance agreed to focus on virtual currencies. “There is convergence between European ministers of finances.” The French Ministry hopes to reach a European agreement before 2015 so that virtual currencies are not subject to VAT and avoid incorrect reimbursements, as was the case with carbon credits.
Bitcoins are a peer-to-peer payment system and digital currency introduced as open source software in 2009 by developer Satoshi Nakamoto.
Conventionally, the capitalised word "Bitcoin" refers to the technology and network, whereas lowercase "bitcoin" refers to the currency itself.
Bitcoin has been a subject of scrutiny amid concerns that it can be used for illegal activities. In 2013 the American FBI shut down the Silk Road online black market and seized 144,000 bitcoins worth US$28.5 million at the time.
The US is considered Bitcoin-friendly compared to other governments, however. In China new rules restrict bitcoin exchange for local currency.
The European Banking Authority has warned that Bitcoin lacks consumer protections. Bitcoins can be stolen and chargebacks are impossible.