What has happened?

The central bank of Israel has said that cryptocurrencies are more of an asset than a currency.

What does this mean?

Talking at a Knesset Finance Committee meeting, Bank of Israel Deputy Governor Nadine Baudot-Trajtenberg, said that "bitcoin and similar virtual currencies are not a currency, and are not considered foreign currency".

She explained that the Bank of Israel’s position is that virtual currencies should be viewed as a financial asset, "with all that this entails".

She added that only the "New Shekel" fits the legal definition of a currency under Israeli law and that “foreign currency” can be defined as "'banknotes' or coins that are legal tender in foreign countries".

Echoing similar warnings by other global regulators, Baudot-Trajtenberg reminded would-be investors that virtual currencies are not backed by central banks or governments and that "the high level of volatility and the lack of supervision may lead to a sudden loss of value".

Beyond the risks to the customer, she also cited compliance risks for the banks, with virtual currencies being linked to potential money laundering and financial crime.

Banks must therefore ensure that measures are in place to mitigate those risks.

The banking supervision department of the Bank of Isreal has created an internal team to examine and study the issues surrounding virtual currencies.

"Not much can be learned from international practices, since as far as we know, no banking regulator anywhere in the world has issued guidelines to the banking system on how to act in relation to customers’ activity in virtual currencies. Our assessment is that this indicates 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."

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