The Bank of Israel said on Monday it would not recognize virtual currencies such as bitcoins as actual currencies and that it is difficult to devise regulations to monitor the risks of activities in this area to the country's banks and their clients.
Deputy Governor Nadine Baudot-Trajtenberg said there had been public complaints that Israeli banks were making it difficult for some customers to transfer funds from their accounts to buy bitcoins. But she said this was something the central bank would not be able to address, and other central banks were facing the same problem.
"The Bank of Israel's position is that they [bitcoins] should be viewed as a financial asset," Baudot-Trajtenberg told the Knesset's Finance Committee.
She said there is no government responsibility for investors in bitcoins, who gravitate to the digital currency mostly for the anonymity it offers.
Baudot-Trajtenberg said the central bank is studying the issue of virtual currencies but cannot learn much from the situation globally since no regulator anywhere in the world has issued guidelines to the banking system on how to act in relation to customers' activities in virtual currencies.
"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," she said. "Beyond the risks to the customer, there are also compliance risks to the bank."
The value of a bitcoin, the biggest and best-known cryptocurrency, surged in mid-December to nearly $20,000, then dropped to less than $12,000 at the end of the month. On Monday, it was trading around $15,370.
Finance Committee members urged Israel's regulators to quickly come up with regulations.
"There seems to be a greater possibility that they [digital currencies] will become central to our financial lives," said panel chairman MK Moshe Gafni (United Torah Judaism).
He called on regulators to submit proposals to the committee within a month on how they intend to deal with bitcoins and other virtual currencies.
Israel's regulators generally oppose giving credence to virtual currencies because they are based on private initiatives and do not have the same level of investor confidence as regular currencies.
"The anonymous nature of virtual currencies leads to the possibility that they may be used to launder money, finance crime, and so forth," Baudot-Trajenberg said.
Shlomit Wagman, director of Israel's Money Laundering and Terror Financing Prohibition Authority, said a thorough investigation is needed since terrorist organisations use virtual currency platforms.
Last week, Israel's markets regulator proposed regulations that would ban companies whose main business revolves around bitcoins and other cryptocurrencies from trading on the Tel Aviv Stock Exchange.
