IN Circular Letter 2020-70, the Insurance Commission encouraged the use of digital payments in insurance transactions. But how do we distinguish digital currencies, which is legal tender, from virtual currencies which is not endorsed by the Bangko Sentral ng Pilipinas?
Digital currency is the overall superset, whereas virtual currency (VC) is the subset. On the other hand, cryptocurrencies are a type of VC. Virtual currency is a type of digital currency. VCs are created by a community of online users and are stored in electronic wallets (e-wallets), and they are generally transacted online. It is available only in electronic form. VCs are not issued or guaranteed by any central bank or government. It is not regulated by government. It is not legal tender in the Philippines, and in all countries, as of 2020. The term virtual currency was created in 2012 when the European Central Bank defined it as “digital money in an unregulated environment, issued and controlled by its developers and used as a payment method among members of a specific virtual community.”
Cryptocurrency is a type of VC that uses cryptography, which is a method of storing and transmitting data in unreadable form so that only the intended receivers can read and process it. The foremost cryptocurrencies are “Bitcoin,” which was introduced in 2009, and Ethereum. The value of cryptocurrencies is driven by supply and demand, hence its price is volatile. Its value is not pegged to any national currency. VC holders may, therefore, incur losses when “investing” in it. While it was not intended to be an investment product, the speculation around it has resulted to its value volatility. For example, bitcoin’s price started at below $1,000 in January 2017, and it increased to about $14,000 by end-December 2017. Just like digital currencies, however, VCs may be exchanged for actual cash or fiat money.
BSP response to VCs
When VCs were gaining usage in the Philippines, the BSP issued a cautionary directive through an advisory dated March 6, 2014. The BSP advised the public on the features, benefits, and risks in dealing with VCs. It did not ban or prohibit VCs.
By 2017, the BSP issued a formal regulatory framework for VC Exchanges through BSP Circular 944 (Guidelines for VC Exchanges), dated February 6, 2017. Only Japan and the Philippines have issued regulations for VC Exchanges as of 2018. In contrast, most economies including the US, UK, Germany, Hong Kong, Taiwan, and Singapore have adopted a wait-and-see approach and have not issued any policy directives on VCs. China and Vietnam, on the other hand, have outrightly banned or prohibited digital-asset exchanges and initial coin offerings.
VC Exchanges are companies or businesses engaged in the changing of VCs into fiat currency, and vice versa. Circular 944 required VC Exchanges to register with the BSP as remittance and transfer companies. This circular was issued in a framework of a regulatory sandbox, then referred to as the “test and learn” approach. Safeguards were also directed to be taken against risks, including money laundering risks. With the appearance of certain fraudulent activities, another advisory was issued on December 29, 2017 reiterating that the BSP does not endorse VCs as a currency or an investment instrument due to its highly speculative and risky nature. As a result of Circular 944, two VC Exchanges were licensed: Betur, Inc. and Rebittance, Inc. in September and October 2017, respectively. Since being licensed in 2017, the total value of transactions increased by 608 percent year-on-year, from 2016, to an aggregate amount of P1.7 billion.
Betur Inc. is a subsidiary of Singapore-based e-commerce applications developer Global Commerce Technologies Pte Ltd. It operates in the Philippines under the brand name Coins.ph. It was founded in 2014 by Silicon Valley businessmen Ron Hoze and Runar Petursson. Its company profile describes itself as “Southeast Asia’s leading mobile blockchain-enabled platform that enables anyone, including those without bank accounts, to easily access financial services directly from their phone. Using Coins, customers have access to a mobile wallet and services such as remittances, air-time, bill payments, and online shopping at over 100,000 merchants who accept digital currency. Operating in the Philippines and Thailand, Coins’ mission is to increase financial inclusion by delivering financial services directly to people through their mobile phones.”
Rebittance Inc. is a subsidiary of Philippine fintech company, Satoshi Citadel Industries Ventures, Inc. It markets itself as a remittance company. It has pioneered in the development of blockchain technology since 2014. Cebuana Lhuillier is an investor in Satoshi Citadel. The word Satoshi was derived from Satoshi Nakamoto who is the pseudonymous person that developed bitcoin. Satoshi is also the smallest unit of bitcoin, which is one hundred millionth of a bitcoin.
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