TOKYO -- Japanese financial regulators have proposed handling virtual currencies as methods of payment equivalent to conventional currencies, a step that would strengthen consumer protection and spur growth in the virtual economy.
The Financial Services Agency's legislative revisions would recognize bitcoins and other virtual currencies as fulfilling the functions of currency, it was learned Tuesday. They are now recognized as objects but are not treated on a par with their more established counterparts. The changes will be submitted during the current ordinary Diet session, with the goal of passage before the term ends.
Under the FSA's proposed definition, virtual currencies must serve as a medium of exchange, meaning that they can be used to purchase goods and services. They must also be exchangeable for legal tender through purchases or trades with an unspecified partner. The FSA sees such a definition possibly helping to develop the financial technology sector.
Exchanges and other institutions dealing in virtual currencies would have to register with the FSA, subjecting them to tighter oversight. The 2014 collapse of MtGox, then the world's largest bitcoin exchange, exposed consumer protection and other issues after customers lost funds on deposit. At the time, the government treated bitcoins as objects under no regulator's purview. Creating a legal framework will allow virtual currencies to spread more safely.
Some 600 virtual currencies now exist around the world. Bitcoin had a market capitalization of more than 700 billion yen (currently $6.24 billion) last November. Hopes are high for the currencies as both investment targets and low-cost methods of payment. Monetary authorities worldwide are setting out to regulate the technology, starting with measures to prevent money laundering and other illicit activity.