E-Money and virtual currencies


Two Initial Coin Offer (ICO) issuers, CarrierEQ Inc. and Paragon Coin Inc, was found in breach of the security law in the United States. The U.S. Securities and Exchange Commission ruled that companies when selling its 'utility tokens' were actually selling securities. Utility tokens are 'tokens which are intended to provide digital access to an application or service' (by FINMA classification). Companies are to return the funds to harmed investors, register its tokens as security, and pay $250.000 penalties. In a press release The U.S. Securities and Exchange Commission's Co-Director of the Enforcement Division stated: “We have made it clear that companies that issue securities through ICOs are required to comply with existing statutes and rules governing the registration of securities,”

Following the dispute in the consensus mechanisms, fourth largest cryptocurrency Bitcoin Cash which emerged from the Bitcoin fork in August 2017, was split into two new competing forks (versions). New version of Bitcoin Cash provides the blocks in the blockchain which are considerably bigger than the existing one. This change is reasoned by the ability of blockchain to scale for massive amounts of transaction. Bitcoin Cash is now divided on Bitcoin Cash ABC (BCHABC), and Bitcoin Cash Satoshi Vision (BCHSV). Two competing chains are struggling for the majority of hashrate power and to emerge as a winning chain which will attract more users of Bitcoin Cash cryptocurrency.

Consortium around the biggest oil industry players such as BP and Shell, joined forces to implement blockchain based solutions for the energy industry. The platform which will be deployed next year, will deal with: contracts, logistics, and accounting. Apart from BP and Shell, the consortium includes Gunvor, ABN AMRO, Koch, ING, Mercuria, and Societe Generale. The aim is to reduce paper-based work in the industry.

Report issued from the Securities and Markets Stakeholder Group (SMSG) is aiming to gave the European Securities and Markets Authority (ESMA) advice regarding the regulation around the Initial Coin Offerings (ICO).  Report is defining terms crypto asset, cryptocurrency, token, and ICO and also try to map existing regulation around the ICO in European countries. SMSG is giving recommendation on additional layer of regulation which will have on mind not to stifle the emergence and development of future hubs. Read the full report here.

Payment service giant Visa is preparing its solution for identification for cross-border payments in collaboration with IBM. The solution is called B2B Connect, and it will deploy the hyperledger blockchain solution. Hyperledger is a project of open source blockchains started in 2015 by the Linux Foundation. Visa plans to release the new service in the first quarter of 2019. First organisation to join B2B Connect is fintech provider Bottomline Technologies which serves 1 200 companies worldwide.

The Japanese Virtual Currency Exchange Association (JVCEA) has received permission from the Japanese Financial Services Agency (FSA) to police and sanction virtual exchanges for any misconduct or violation. In this way, the JVCEA is permitted to make rules on safeguarding assets, preventing possible money laundering, setting rules on identification and others.JVCEA is known for policies through tougher than existing financial regulatory frameworks.

The FSA granted 16 permissions for the virtual currency exchanges in Japan, but not the single permision in 2018. Read FSA’s statement here. (Japanese)

The digital currencies story is a continuation of the long-running saga of economics, markets, and commodity exchange in human society. With the constant rise of the global network, we have witnessed many global services becoming widely accepted and in a way changing (by adding to) our experience of mutual interaction. Looking back in history of the Internet we can conclude that public-key cryptography and digital signatures make e-money possible.



E-money can either be centralised (with the control point of money supply) or decentralised, where the control over the supply can come from various sources or network of sources (Bitcoin and/or other virtual currencies). The main difference between e-money and virtual currencies is that e-money does not change the value of the fiat currency (euro, dollar, etc), but virtual currency is not equivalent to any fiat currency. In other words, all digital currency is electronic money, but e-money is not necessarily digital currency.


Electronic money or e-money in short is the money balance recorded electronically on a stored-value card or remotely on a server. The Bank for International Settlements defines e-money as ‘stored value or prepaid payment mechanisms for executing payments via point-of-sale terminals, direct transfers between two devices, or even open computer networks such as the Internet’. E-money is usually associated with so-called smart cards issued by companies such as Mondex and Visa Cash.

Electronic money is a floating claim that is not linked to any particular account. Examples of e-money are bank deposits, electronic fund transfer, payment processors, and digital currencies.

The term ‘stored-value card’ means the funds and/or data are 'physically' stored on the card, in the form of binary-coded data. With prepaid cards, the data is maintained on the card issuer's computers. Typical stored-value cards include: prepaid calling cards, gift cards, payroll card, loyalty cards, travel cards.

E-money can also be stored on (and used via) mobile phones or in a payment account on the Internet. Most common and widely used mobile subsystems are Google Wallet and Apple pay.

The fast introduction of e-money has lead to governmental regulatory activities. Hong Kong was among the first jurisdiction to regulate e-money, by allowing only licensed banks to issue stored-value cards. Since 2001, the European Union has implemented a directive on the taking up, pursuit and prudential supervision of the business of electronic money institutions (E-Money Directive - 2009/110/EC).

Electronic currencies can be divided into soft currency and hard currency. Hard electronic currency is one that only supports non-reversible transaction. Reversing transaction, even in case of a legitimate error is not possible. They are more oriented to cash transactions. Examples for hard currencies are: Western Union, KlickEx, or Bitcoin. On the other hand, soft electronic currency is one that allows reversal of payments in a case of fraud or disputes. Examples are PayPal and credit cards.

Digital currency

Simple intention drives this technological avalanche, based on financial and commercial competition (as is the case of regulated economies). In this struggle, the regulated market and the privacy of the affairs of financial actors are crucial. Fair and constructive financial institutions acting as intermediaries are the safeguards of these principles.  In most cases these are state regulatory agencies. But something has changed in the digital era. Regulation is taking a new form of teamwork and networking.

The European Central Bank defined in 2012 virtual money (virtual currencies) as a ‘type of unregulated, digital money which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community’. This Internet based medium of exchange have properties similar to physical currencies, however allows for instantaneous transaction and borderless transfer-of-ownership. Banks and customers use their keys to encrypt (for security) and sign (for identification) blocks of digital data that represent money orders. A bank ‘signs’ money orders using its private key and customers and merchants verify the signed money orders using the bank’s widely published public key. Customers sign deposits and withdraw using their private key and the bank uses the customer's public key to verify the signed withdraws and deposits.

In 2014, the European Banking Authority defined virtual currency as ‘a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency, but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically’.

Both virtual currencies and cryptocurencies are types of digital currencies.

Cryptocurrencies are set to take the online world by storm, as their popularity and use, and understanding of their advantages and limitations increases. Giant companies like Apple, Dell and PayPal have already indicated their plans to integrate cryptocurrencies as a payment method, and more are likely to follow, with Bitcoin emerging as one of the most popular virtual electronic currencies. The main invention of this cryptocurrency is to present the central ledger of all transactions, known as blockchain. This open source software allows all peers in a network to verify every transaction ever made in the Bitcoin system and therefore serve as guardians to this central ledger.

There are signs that central banks are also paying more and more attention to virtual currencies. As an example, in early 2016, the People's’ Bank of China announced that it was looking into the possibility of launching its own virtual currency, considering that this would contribute to making economic activities more transparent, while also reducing money laundering and tax evasion.

The main issues

There are many comparative advantages of this system of money creation and payments compared to the usual form of online financial transactions. Using one source (the Internet) to connect to a unique global financial system sounds like possible futuristic idea, but with virtual currencies, it is not far away.

At the same time, there are also many warnings that virtual currencies could be misused for illegal goods and services, fraud, and money laundering. The anonymity associated to the use of virtual currencies (such as bitcoin) transactions increases the potential of possible misuse. A US government-funded report on the 'National Security Implications of Virtual Currencies', published at the end of 2015, noted that ‘non-state actors’, including terrorist and insurgent groups, may exploit virtual currency by using it for regular economic transactions.

Government regulation is still the key to virtual currencies attracting more users, as well as to potentially address the risks of misuse. States around the world are currently considering its regulation. This will not only increase consumer confidence in the technology, it will also involve more companies and investors in the growing business. While some are arguing that unregulated virtual currencies are safe haven for money laundering and illegal flow of money, others present this as an ultimate tool in fighting identity thefts and leakage of personal financial information.




The IMF is exploring the implications of new technologies for financial services.


The IMF is exploring the implications of new technologies for financial services. A January 2016 paper on ‘Virtual Currencies and Beyond: Initial Considerations’ points at different challenges related to the regulation of virtual currencies and outlines the need ‘to calibrate regulation in a manner that appropriately addresses the risk without stifling innovation’. The organisation has an Interdepartmental Working Group on Finance and Technology and a High Level Advisory Group on Fintech, which study the economic and regulatory implications of developments in finance and technology. A June 2017 paper explores the possible impact of fintech on financial service and possible regulatory responses.


One area of work for the EBA is


One area of work for the EBA is payments and electronic money, and activities in this field are aimed at ensuring that payments across the EU are secure, easy, and efficient. In 2014, the Authority issued an ‘Opinion on Virtual Currencies’, outlining a series of requirements that would be necessary to regulate virtual currencies, and advising financial institutions not to buy, hold, or sell such currencies while there is no regulatory framework in place. In 2016, the EBA expressed support for the the European Commission’s proposal to bring virtual currency exchange platforms within the scope of EU’s Anti-Money Laundering Directive.


The Bank has focused on issues related to e-money and e-banking since as early as 1998, when its Basel Committ


The Bank has focused on issues related to e-money and e-banking since as early as 1998, when its Basel Committee on Banking Supervision published a document on ‘Risk management for electronic banking and electronic money activities’ (republished in 2003 as ‘Risk management principles for electronic banking(’. The Basel Committee’s Electronic Banking Group also elaborated a paper on ‘Management and supervision of cross-border electronic banking activities’, in 2003.  Over the years, the Bank has conducted numerous surveys on developments in the field of e-money and e-banking. Digital currencies have also been in the Bank’s attention, through its Committee on payments and market infrastructure.


In establishing its digital single market, the EU has progressively developed a dense 


In establishing its digital single market, the EU has progressively developed a dense copyright legislation corresponding to a set of ten directives, which harmonise essential rights of authors, performers, producers and broadcasters. To ensure EU copyright rules are fit for the digital age, the European Commission has recently presented legislative proposals to modernise the EU legal framework, in order to allow more cross-border access to content online and wider opportunities to use copyrighted materials in education, research and cultural heritage; and have a better functioning copyright marketplace.


In recent years, the FATF has been paying attention to the potential use of e-payment methods as tools for cri


In recent years, the FATF has been paying attention to the potential use of e-payment methods as tools for criminals. The 2013  Guidance for a Risk-Based Approach to Prepaid Cards, Mobile Payments and Internet-Based Payment Services outlines recommendations for countries and the private sector of how to regulate and supervise such products and services and implement anti-money laundering (AML) and counter-terrorist financing (CFT) measures. In 2014, the paper on Virtual Currencies. Key Definitions and Potential AML/CFT Risks proposes a definition and classification of virtual currencies and explores potential risks associated with such currencies.


Ecommerce Europe has an e-Payments Working Committee which deals with issues such as regulatory and legal fram


Ecommerce Europe has an e-Payments Working Committee which deals with issues such as regulatory and legal frameworks, technical standards, technical innovations, and e-identification and trust services for online payments. In April 2017, the Committee published two position papers: one on online payments, containing recommendations for an innovative and competitive cross-border payments landscape in Europe (covering issues such as customer authentication, interoperability of payment systems, and e-identification schemes); and the other one containing recommendations on online payments authentication. In June 2017, the organisation hosted the Global Ecommerce Summit, which focused on issues related to how digital currencies and blockchain could change the e-commerce sector.


Other Instruments

EBA Opinion on Virtual Currencies (2014)


Blockchain Technology and Internet Governance (2017)


Bitcoin’s Creator Satoshi Nakamoto Is Probably This Unknown Australian Genius (2015)
Taxation and Today's Digital Economy (2015)
This is Why Bitcoin Won’t Go Away Anytime Soon (2015)
Tech Giant Microsoft Accepts Bitcoin Payments (2014)
Online Cash Bitcoin Could Challenge Governments, Banks (2011)


Opportunities and Risks Associated with the Advent of Digital Currency in the Caribbean (2016)
Internet Governance Acronym Glossary (2015)
An Introduction to Internet Governance (2014)


Bitcoin: A Peer-to-Peer Electronic Cash System (2008)


One Internet (2016)
Virtual Currencies and Beyond: Initial Considerations (2016)
National Security Implications of Virtual Currency. Examining the Potential for Non-state Actor Deployment (2015)
EBA Opinion on Virtual Currencies (2014)
Risk Management for Electronic Banking and Electronic Money Activities (1998)

GIP event reports

Blockchains for Sustainable Development (2018)
Will technology help developing countries have easier access to trade finance (2018)
Building on a Blockchain (2018)
Report for World Economic Forum Annual Meeting 2017 (2017)

Other resources

Revenue and Customs Brief 9 (2014): Bitcoin and Other Cryptocurrencies (2014)
Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies (2013)


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