Dutch Central Bank Latest to Warn About Bitcoin, Other Virtual Currencies

While no government has had the audacity to shutdown virtual currency-phenom bitcoin, central banks around the world are keeping up with their warnings about it and other virtual currencies. Today was no exception after the central bank of the Netherlands, De Nederlandsche Bank, issued a stark warning, though they also note that virtual currencies fall outside the jurisdiction. The bank warned customers that the exchange rate is volatile and there is no central issuer which may be held liable. Also, there is no depositor guarantee system.

Similar warnings have been seen from other central banks, including the U.S. Federal Reserve.

Statement from Dutch Central Bank (Translated):

Consumers should be aware of the risks of virtual currency aware

The emergence and growing popularity of virtual currencies (like bitcoin, litecoin, etc.) are followed by the Dutch Central Bank (DNB) with attention.

The developments around virtual currencies go fast. At present the state of affairs as follows: virtual currencies fall outside the scope of the Act on Financial Supervision (Wft). DNB thus no monitoring of these virtual currencies. Nor, she oversees companies acting herein. DNB suggests that consumers should be aware of this and will have to realize the risks they run when they buy currencies like bitcoin. The exchange rate is volatile and there is no central issuer which may be held liable. Consumers where necessary Also, the deposit guarantee scheme does not apply.

Here is the statement U.S. Fed Chairman Ben Bernanke issued in mid-November:

Dear Senators:

Thank you for your recent inquiry regarding virtual currencies. As you noted, virtual currencies have been receiving increased attention from U.S. authorities over the past several months.

Historically, virtual currencies have been viewed as a form of “electronic money” or area of payment system technology that has been evolving over the past 20 years. Over time, these types of innovations have received attention from Congress as well as U.S. regulators. For example, in 1995, the U.S. House of Representatives held hearings on “the future of money” at which early versions of virtual currencies and other innovations were discussed. Vice Chairman Alan Blinder’s testimony at that time made the key point that while these types of innovations may pose risks related to law enforcement and supervisory matters, there are also areas in which they may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system.

Although the Federal Reserve generally monitors developments in virtual currencies and other payments system innovations, it does not necessarily have authority to directly supervise or regulate these innovations or the entities that provide them to the market. In general, the Federal Reserve would only have authority to regulate a virtual currency product if it is issued by, or cleared or settled through, a banking organization that we supervise. Given the Federal Reserve”s authority and the manner in which virtual currencies have developed, the Federal Reserve has focused primarily on a supervised banking organization’s role in the products’ sale and distribution, as well as the applicable regulations, such as Bank Secrecy Act (BSA) /anti-money laundering (AML) requirements.

Policies, Procedures, Guidance or Advisories

In March 2013, the Financial Crimes Enforcement Network issued guidance to clarify that an administrator or exchanger of virtual currency is generally considered a money transmitter under definitions and therefore subject to BSA requirements?’ The Federal Reserve’s supervisory expectations and guidance related to compliance for bank transactions using virtual currencies have been incorporated into the Electronic Cash section of the Federal Financial Institutions Examination Council (FFIEC) Examination Manual. The overall objective of the guidance and examination procedures provided in this section is to assess the adequacy of a bank’s systems to manage the risks associated with electronic cash and management’s ability to implement effective monitoring and reporting systems. The section further lists applicable risk factors and risk mitigation steps for banks to consider. The Federal Reserve supervision staff has on–going initiatives with the FFIEC member agencies to identify additional areas of concern that require heightened attention by the banking organizations we supervise.

Ongoing Coordination

In May 2013, the US. Department of the Treasury (Treasury) named Liberty Reserve S.A. as a financial institution of primary money laundering concern under Section 311 of the USA PATRIOT Act (Section 31l).4 ‘According to the announcement, Liberty Reserve, a web–based money transfer system or “virtual currency,” was specifically designed and frequently used to facilitate money laundering in cyber space. This action also marked the first use of Section 311 authorities against a virtual currency provider.

The statutory language of Section 311 requires Treasury to consult with the Federal Reserve Board when these special measures are being developed and proposed. Therefore, Federal Reserve Board staff participated in coordination and consultation efforts leading up to the designation of the virtual currency provider, Liberty Reserve, under Section 311.

Specific Plans or Strategies

As noted above, the Federal Reserve plans to work with other FFIEC member agencies on electronic cash and related issues such as virtual currencies, as needed, for banking organizations. The Federal Reserve will continue to monitor developments as part of its broad interest in the safety and efficiency of the payment system. We also stand ready to cooperate with other agencies in fulfilling their mandates, as appropriate.

I hope you find this information helpful.

Sincerely,
[Ben Bernanke]