The Philippines is considering regulations for digital currencies as the government seeks to bolster protection for the increasing number of overseas Filipinos using bitcoin and its counterparts to send money home.
The volume of transactions involving digital currencies is “rising very quickly” because they offer a cheaper and quicker way to move cash than through regular remittance channels, Nestor Espenilla, a deputy governor at the central bank, said in a Dec. 19 interview at his office in Manila.
“We are concerned with potential money laundering and consumer protection,” said Espenilla, who heads the central bank’s supervision and examination unit. “We are studying putting virtual currency exchange operators under a more formal regulatory framework.”
The central bank is bolstering its anti-money laundering efforts after money from one of the largest heists in modern history found its way into the Philippines earlier this year, and after a series of high-profile security breaches at bitcoin exchanges. In August, hackers stole about $65 million of bitcoin from a Hong Kong-based exchange. Almost three years ago, Tokyo-based Mt. Gox, once the largest bitcoin exchange in the world, disclosed it was hacked and filed for bankruptcy weeks later.
Bangko Sentral ng Pilipinas estimates the volume of remittance transactions involving virtual currencies has risen to at least $2 million a month. While for now that represents a small proportion of the record $25.8 billion of funds Filipinos working abroad sent home last year, it signals the need to regulate the use of digital currencies, which are currently governed by a “mere advisory to the public” about their pros and cons, according to Espenilla.
“One class of operations framework that we’re looking at right now will allow virtual currencies to operate in the country, and that makes them accountable for certain matters like anti-money laundering initiatives,” he said.
The Philippines has stepped up its efforts at warding off money laundering and technology crimes after thieves hacked into the Bangladeshi central bank’s account at the U.S. Federal Reserve in February and routed $81 million to accounts at Manila-based Rizal Commercial Banking Corp. Most of the funds disappeared after being transferred through a remittance company to gaming halls in the Philippines.
The central bank has since announced a plan to expand its cyber-security unit and has placed banks, money changers and even pawnshop operators under tighter scrutiny.
Companies using virtual currencies to conduct business will likely be asked to conduct client checks, report suspicious transactions and send data to the central bank, Espenilla said.
“We have to be mindful of what risks are being introduced into the system,” he said. “In exchange, virtual currency operators get legitimacy. For so long as the regulatory environment is clear, innovation can happen.”
Central banks should lead the way in supervising digital currencies and developing their own, in order to best take advantage of their “considerable promise,” People’s Bank of China Vice Governor Fan Yifei wrote in a September column.