Introduction to Virtual Currency
Defining Virtual Currency
Virtual currency (also called virtual money or virtual currency) represents a digital form of value that operates independently of central bank systems. Key characteristics include:
- Decentralized issuance: Not government-issued
- Transactional utility: Functions as an exchange medium in specific contexts
- Digital infrastructure: Relies on electronic transfer, storage, and trading mechanisms
Classification Framework
- Closed-loop currencies: Restricted to specific virtual ecosystems (e.g., gaming tokens)
- One-way convertible: Exchangeable from fiat to virtual currency only (e.g., airline miles)
- Two-way convertible: Fully interchangeable with fiat currencies (e.g., Bitcoin, Ethereum)
This analysis focuses primarily on Type 3 currencies due to their systemic financial implications.
Challenges to Traditional Financial Systems
1. Impact on Monetary Sovereignty
- Undermines central bank control over money supply
- Reduces seigniorage revenue
- Weakens monetary policy effectiveness
2. Financial Crime Risks
- Anonymity enables money laundering
- Facilitates terrorist financing
- Used for tax evasion and sanctions avoidance
3. Investor Protection Gaps
- Extreme price volatility
- Lack of intrinsic value benchmarks
- Limited recourse for platform failures
4. Regulatory Jurisdiction Conflicts
Blurs boundaries between:
- Currency (central bank oversight)
- Security (financial regulators)
- Commodity (trade authorities)
Global Regulatory Approaches
| Country | Regulatory Stance | Key Measures |
|---|---|---|
| United States | Multi-agency oversight | SEC for securities, CFTC for commodities, FinCEN for AML |
| European Union | Risk-focused | AMLD5/6 compliance, transaction tracking |
| Japan | Progressive legalization | Funds Settlement Act, exchange licensing |
| Singapore | Opportunity-oriented | AML-focused exchange regulations |
| South Korea | Conservative | Real-name transaction system |
| Taiwan | Gradual adoption | NT$500K+ transaction reporting |
Policy Recommendations
1. Establish Clear Regulatory Frameworks
- Specialized legislation defining virtual currency classifications
Designated oversight bodies based on asset characteristics:
- Financial Supervisory Commission for security-like instruments
- Central Bank for monetary policy impacts
- Ministry of Economic Affairs for commodity treatment
2. Platform Governance Standards
- Corporate separation: Require dedicated legal entities for exchanges
- Capital requirements: Minimum operating funds
- Transaction archiving: Full audit trails with real-name verification
3. Promote Responsible Innovation
- ESG-aligned products: Develop sustainable investment instruments
- CBDC research: Explore digital fiat alternatives
- Industry partnerships: Foster compliant product development
FAQ Section
Q1: Are virtual currencies legal in Taiwan?
A: Yes, but exchanges must comply with AML regulations for transactions exceeding NT$500,000.
Q2: How does virtual currency differ from CBDC?
A: Virtual currencies are privately issued, while central bank digital currencies (CBDCs) represent sovereign monetary claims.
Q3: What investor protections exist for crypto assets?
A: Currently limited—buyers should verify exchange credentials and understand high-risk nature.
Q4: Why classify virtual currencies differently?
A: Varied characteristics (security/commodity/currency) require tailored regulatory approaches.
Q5: Can virtual currencies replace fiat money?
A: Unlikely—lack of legal tender status and price stability prevent full monetary functions.