Bitcoin does not meet the definition of a currency or even an electronic payment form in Finland, where the central bank has instead decided to categorize the software as a commodity.
“Considering the definition of an official currency as set out in law, it’s not that. It’s also not a payment instrument, because the law stipulates that a payment instrument must have an issuer responsible for its operation,” Paeivi Heikkinen, head of oversight at the Bank of Finland in Helsinki, said in a telephone interview on Thursday. “At this stage it’s more comparable to a commodity.”
Finland is the latest country to try to come to grips with the advent of virtual currencies that are not controlled by any central bank or government. As regulators in Europe warn of the risks associated with using such software as a substitute for real money, authorities are struggling to design frameworks to protect consumers and businesses from potential losses they have no legal means of recouping.
In the Nordic region, Norway’s government has also decided bitcoin does not qualify as a currency, while in Denmark the financial watchdog says it is putting together recommendations for lawmakers on how to treat bitcoin and its competitors.
Globally, bitcoin has had a mixed reception, with China’s central bank banning lenders from handling the virtual money. The US Internal Revenue Service has not offered guidance on bitcoin beyond saying it is working on the issue and that it has been monitoring digital currencies and transactions since 2007. Meanwhile, US Representative Steve Stockman is accepting bitcoin donations for his senatorial campaign.
In Finland, a “AAA” rated euro member that has tended to side with Germany on most economic policy matters, the response to bitcoin by the public has been mixed. One in 10 Finns is interested in investing in bitcoin, according to a survey commissioned by stockbroker Nordnet AB from CINT AB. Among Finnish men, interest was higher at 17.2 percent.
Europe’s first automated teller machine for buying bitcoin was installed at a record store at Helsinki Railway Station last month. To buy bitcoin, customers key in their bitcoin-wallet identifier, insert euro bills and virtual currency is transferred digitally to the wallet online.
Though the central bank rejects bitcoin’s status as a legal form of tender, Finns can legally use the software to make payments. Capital gains made on bitcoin investments are taxed, though losses are not deductible, according to guidelines by the tax authority. Finns are required to pay income tax on mined bitcoins.
The price of bitcoins soared in November, topping US$1,000 for the first time, as speculators anticipated broader use of digital money. The price has since dropped to about US$820 on Bitstamp, one of the more active online exchanges where bitcoins are traded for dollars and other currencies. One bitcoin cost about US$15 a year ago.
The European Banking Authority said last month that consumers using virtual currencies should be aware they are not protected from losses. Finland’s Financial Supervisory Authority said for now it cannot regulate bitcoins or similar software.
“If there appears a need to supervise the virtual currency and related activity, legislation should define this,” said Katri Jokinen, legal adviser at the watchdog’s institutional supervision department. “Buying bitcoins isn’t a payments service regulated by current law. It’s like buying some product.”