Friday, December 6, 2013
On Dec. 5, 2013, the PBC, along with China's other bank regulatory agencies, issued a blanket statement to the country's financial and payment institutions that they cannot have any association with Bitcoin, either to buy or sell it, or in any way establish processes for exchanging, underwriting or saving it.
In a statement, PBC said it made the decision "to protect the public's property rights, to protect RMB's official currency status, to prevent money laundering risk and to protect financial stability…" The RMB (renminbi) is China's official currency.
PBC said bitcoin is "not currency in the true sense. Bitcoin is a specified virtual commodity, it does not have equal legal status with currency, and it cannot and should not be circulated as currency on the market." The bank noted that no financial institution issues bitcoin, no central authority regulates it and that it is exchanged anonymously, which makes it a prime money laundering tool.
In the wake of PBC's announcement, the value of bitcoin on the open market dropped as much as 30 percent, from a high of over $1,200 per bitcoin unit.
Tom Waters, Director of Sales at Bank Associates Merchant Services, believes that the PBC's notice is a first step in the eventual regulation of bitcoin in the East Asian economic powerhouse. "This notice is actually pretty good news for bitcoin," he told The Green Sheet. "It suggests that China is open to the technology and is preparing for its widespread adoption by taking precautionary measures." Waters noted that the PBC is not shutting down the bitcoin marketplace in China, where the practice is increasing in popularity and where the largest bitcoin exchange by volume, Shanghai-based BTC China, operates. "In other words, the banks cannot perform direct, bitcoin-related services," he said. "Nothing really speaks directly to independent exchanges or the banks' relationships to those exchanges."
Instead, the PBC is attempting to keep the cryptocurrency from facilitating money laundering activities and destabilizing the RMB. "Exchanges are allowed to continue as long as they operate within the confines of the law," Waters said. "Bitcoins can be freely used for online commerce as long as consumers recognize that they are taking all the risk. Bitcoin processors are allowed to continue as long as they are not deemed financial institutions."
In the United States, the federal law enforcement community officially took notice of bitcoin in March 2013 when the Financial Crimes Enforcement Network (FinCEN) sought to define virtual currencies, and bitcoin in particular, for the purposes of regulating them in the fight against money laundering and other illegal activities. FinCEN does not distinguish between types of currency, virtual or otherwise, when it comes to its anti-money laundering efforts.
Also in March, Amazon.com integrated the bitcoin payment functionality of Atlanta-based BitPay Inc. for its Fulfillment-by-Amazon web service that facilitates distribution for merchants who sell goods on Amazon. BitPay said the integration represented the first move into large-scale e-commerce for "companies wishing to accept payments over the bitcoin peer-to-peer payment network."
BitPay settles bitcoin transactions in U.S. dollars. Waters equated BitPay's process to dynamic currency conversion, where exchange rates are locked in at the time transactions are made. Therefore, merchants receive full value for a bitcoin transaction worth $100 at the time of the transaction, rather than $50 if the volatile currency loses half of its value tomorrow, Waters said.
Unlike critics of the virtual currency, Waters believes bitcoin is around for good because it provides benefits to vendors, merchants and consumers alike. He said bitcoin is not costly for consumers to exchange, can be exchanged almost instantly and that it is nearly universal as a worldwide accepted currency. He added that bitcoin payments would also reduce chargebacks for merchants because bitcoin transactions are nonrefundable; nor do merchants have to pay fees to banks or other network operators as they do to accept bankcards.
The bitcoin payment option may not be ideal for the local grocery store, but it can be for high-risk merchants vulnerable to credit card fraud, and for businesses in the small-ticket market, such as e-book sellers, where micro transactions as small as a quarter can be conducted securely via bitcoin payments, according to Waters.
Bitcoin is also attractive to payment vendors because of its low processing costs, he noted. "You can charge 1 percent [of the transaction] and make 0.8 percent profit on that transaction as an alternative form of payment," he said. "I think this is why PayPal says they are not averse to accepting it."
Waters estimated that Amazon's profit margin could double on bitcoin payments if it offered that option for consumers. "They [Amazon] will essentially be able to charge less than a credit card payment and they will be able to retain that profit for themselves," he said. 
Editor's Note:
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