Bank of Mauritius warns against virtual currency ‘bitcoin’
Incidentally, the price of bitcoins has plummeted this month following an announcement from China’s central bank in early December barring financial institutions from using the currency. (Image: The Guardian)
Following in the footsteps of the central banks of China and France, the Bank of Mauritius (BOM) has cautioned the public against using new forms of virtual currency, especially bitcoins.
In a statement issued Wednesday, December 18, the central bank states, “Consumers are not protected through regulation when using virtual currencies as a means of payment or for investment purposes and may be at risk of losing their money.”
Incidentally, the price of bitcoins has plummeted this month following an announcement from China’s central bank in early December that bitcoin was not legally protected, had no “real meaning”, and that financial institutions were barred from using the currency.
Following the central bank warning, the value of one bitcoin on BTC China stood at £266.02 on Wednesday, December 18, down to almost a third from a high of £741.70 in late November.
Also, soon after China, France added its voice to the widespread official concerns over the increasing use of bitcoins. Noting that a growing number of retailers and service providers were accepting bitcoin for payment in France, the central bank warned they benefited from no guarantee that the bitcoin could be cashed for real money.
For the island economy, the implications are worrying. While the BOM communique warns the public about the risks associated with bitcoins, it also serves to acknowledge that these virtual currencies are gaining popularity.
The Bitcoin is a virtual currency that appeared in 2009. As it clear from the clampdown on this currency by various central banks, it has no legal tender unlike conventional currencies and no institution is obliged to accept a bitcoin as payment.
However, that does not stop any individual from acquiring bitcoins on virtual platforms in exchange for real currency. And, bitcoins can be stored in an electronic portfolio and then used to make purchases from outlets that accept this new currency.
The bitcoin market is currently very limited, both by the technology it requires and the limited number of places where bitcoins are accepted for payment. The currency, as shown by the fall in its value since the warning by China’s central bank, is also extremely volatile.
And, what sets bitcoins completely apart from real currency is that, unlike conventional currency which is issued by central banks, it is the users themselves who create the virtual currency by checking the validity of their transactions. It allows users to avoid the costs and delays associated with the banking system and perform transactions in almost total anonymity. This can be seen as an advantage.
For instance, despite China’s cautioning users on virtual currencies, Bitcoin remains legal to use in China since this currency does not owe its origin to any monetary authority to begin with.
But, the anonymity surrounding bitcoins also means that those who choose to invest in this currency are exposed to the risk of fraud or scam, knowing the bitcoin market is not regulated yet.
Urging extreme caution while dealing in these currencies, the central bank of Mauritius concludes that the high degree of anonymity of these virtual currencies ‘could be misused for criminal activities, including money laundering.’