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Economy

To regulate or not to regulate: Debate over Bitcoin grows in US

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Members of the New York State Department of Financial Services listen to testimony at a hearing in New York.   © Reuters

NEW YORK -- Debate is growing in the U.S. over how to regulate the digital currency known as Bitcoin. The currency is becoming increasingly popular for use in online payments and overseas remittances, but the lack of an issuer or controlling entity leaves it open to abuse as a criminal tool.

     The state of New York, home to the world's largest financial center, is considering creating a system for licensing operators of Bitcoin exchanges. The ideas is to strictly monitor transactions and protect consumers. The system would carefully screen the operators to keep out criminal elements and have a detailed understanding of their finances.

     The state also sees such regulations as a way to reduce crime, as the currency can be used for money laundering and illicit trading of guns and drugs.

     U.S. law requires all corporate and individual currency trading activity to be reported to the Treasury Department. Last year, the department announced that the rule also applies to virtual currencies, but not everyone has heeded the notice.

     The state of California, noting a growing interest in Bitcoin among emerging Internet companies, has started creating rules of its own regarding transactions.

     This month, Russia banned Bitcoin transactions out of concern that it was being used for criminal activities. In China, the central bank banned financial institutions from using the currency for settling transactions. Both countries see the moves as a way to maintain trust in their own currencies and prevent crime.

     The European Central Bank said the legal framework for Bitcoin is insufficient, hinting at a possible introduction of regulations to prevent the currency from being used for illegal purposes.

     Many companies that have a stake in Bitcoin's success actually want to see some regulations put in place in order to enhance the currency's credibility and therefore attract more users over the long term.

     Others, however, warn that excessive regulations will hurt the currency. This group includes Jonathan Johnson, vice chairman of major U.S. online retailer Overstock.com, which accepts Bitcoin for payment.

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