Bank of Israel: Cryptocurrencies Are Assets Not Currencies

Israel's central bank has said that cryptocurrencies like bitcoin are more an asset than a currency.

Addressing a meeting of the Knesset Finance Committee yesterday, Nadine Baudot-Trajtenberg, deputy governor of the Bank of Israel, said, "Bitcoin and similar virtual currencies are not a currency, and are not considered foreign currency."

Defining the Bank of Israel's position in the cryptocurrency ecosystem, she said that digital currencies should instead be viewed as a "financial asset" and that bitcoin does not fit the central bank's legal definition of currency.

Baudot-Trajtenberg also warned that that bitcoin and other cryptocurrencies are not backed by official bodies like central banks or governments, and that investors and users should be aware of the risks, including a high level of volatility that might lead to sudden drop in value.

Further citing possible compliance risks for banks, she continued to say that the anonymous nature of virtual currencies leads to the possibility of their use in money laundering and financial crimes. Banks, she said, need to take necessary measures to combat fraudulent activities involving cryptocurrencies.

The Bank of Israel's banking supervision department has formed an internal team to look into such risks, the statement indicates.

However, cryptocurrency technology poses problems for the authorities when it comes to designing regulations, she said, stating.

"Our assessment is that ... there is a real difficulty in issuing sweeping guidelines to the system regarding the proper way to estimate, manage, and monitor the risks inherent in such activity," the deputy governor added.

The new comes a month after Israeli financial watchdog – the Israel Securities Authority (ISA) – said that it is seeking to ban any company that has a major involvement in bitcoin trading from the Tel Aviv Stock Exchange.

In past months, a number of other central banks and financial regulators have issued warnings as the prices of cryptocurrencies have soared to record levels. Countries including the U.K., India, Russia and more have recently sounded the alarm over the perceived risks of investing in bitcoin.

Israeli banknotes image via Shutterstock