Should bitcoin be a commodity?

Korea’s financial authorities are considering the possibility of categorizing bitcoin and other cryptocurrencies as commodities rather than forms of currency.

During a J-Forum session hosted by the JoongAng Ilbo on Tuesday, Cha Hyeon-jin, head of the payment and settlement systems department at the Bank of Korea, said cryptocurrencies exchanged in Korea should not be considered a type of currency but as a commodity that investors buy and sell.

“The fact that people consider profitability when investing in cryptocurrencies indicates that they see virtual currencies as commodities,” Cha said in a speech opening the session. “If their prices are determined by and fluctuate based on supply and demand, then they should not be viewed as a means of payment or currency but as commodities.”

Cha added that if cryptocurrencies are categorized as commodities, it should be the Fair Trade Commission, not the Financial Services Commission, that ought to regulate and monitor exchanges.

The central bank is reportedly in the process of transferring regulatory responsibility for cryptocurrencies from the Financial Services Commission to the Fair Trade Commission, though an official from the Financial Services Commission said the Bank of Korea had yet to make such a request to the commission.

The Financial Services Commission raised the point earlier this month that currency might not be the best categorization for cryptocurrencies since the government can’t guarantee their value, but it was reluctant to support their designation as financial products since doing so might have an unexpected impact on the market.

“At this point, it is difficult to consider cryptocurrencies as currencies or financial products,” Kim Yong-beom, vice chairman of the commission, said during a meeting on Sept. 1. “But the indiscreet exchange of cryptocurrencies might inflict damage on the integrity of financial markets.”

The commission has instead focused on preventing possible consumer damage and illegal practices like money laundering. One measure implemented earlier this month requires banks to verify the identity of cryptocurrency account holders.

In Korea, cryptocurrency exchanges work with banks to create accounts for customers so they can withdraw and deposit money to be used at the exchanges. Identity verification was initially done by exchanges themselves, but the Financial Services Commission has ordered the banks to conduct the verification themselves.

As the Korean government is scrambling to come up with regulatory measures for cryptocurrencies, the Bank of International Settlement, “the central bank for central banks,” advised its members to consider issuing cryptocurrencies of their own, an indication that authorities can no longer ignore the rise of cryptocurrencies.

“All central banks may eventually have to decide whether issuing retail or wholesale CBCCs [central bank cryptocurrencies] makes sense in their own context,” the Bank of International Settlement said in a report Sunday. “In making this decision, central banks will have to consider not only consumer preferences for privacy and possible efficiency gains … but also the risks it may entail for the financial system and the wider economy, as well as any implications for monetary policy.”

BY CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]