JAPAN’S government is set to clarify its view on virtual currency in the wake of the collapse of Tokyo-based bitcoin exchange Mt.Gox, officials said, though they appeared no closer to declaring a specific agency in charge of overseeing bitcoin.
People familiar with a draft being prepared for a cabinet meeting on Friday say the government will reaffirm that Japan doesn’t consider bitcoin a currency, the basis for the argument by Japan’s banking watchdog, the Financial Services Agency, that bitcoin shouldn’t be subject to its oversight.
The draft is being prepared by the FSA and other government agencies in response to a letter from upper-house lawmaker Tsutomu Okubo asking for clarification of the issue, including whether bitcoin should be considered a currency or a type of financial product.
An FSA official involved in preparing the response declined to comment on details.
One government official said, “What we are considering is that bitcoin isn’t a currency, but that doesn’t mean it will automatically be categorised as a commodity.”
The draft doesn’t set out a clear framework for regulating bitcoin, officials said, though it does say the government plans to tax transactions associated with bitcoin.
In theory, this means bitcoin transactions would be subject to normal taxation, including the consumption tax, which is set to rise to 8 per cent from 5 per cent on April 1.
Trading gains from bitcoin transactions would also be taxable. Officials acknowledge that authorities can only tax reported transactions, and are looking for ways to improve the tracking of online bitcoin transactions.
Rules on how to value the bitcoin transactions could be set by the National Tax Agency, one official said.
Until now, Japanese regulators have been relatively silent on the issue of bitcoin. But the shutdown of operations at Mt.Gox has raised pressure on regulators to clarify their stance.
Mt.Gox, at one point the dominant platform for trading the virtual currency, filed for bankruptcy protection last Friday, saying it had lost bitcoin valued at almost half a billion dollars.
In a process that has become increasingly common in Japan, Mr. Okubo, a lawmaker of the Democratic Party of Japan and a former vice finance minister, addressed his concerns in an open letter to the government, which means that by law, the government must respond in writing.
“Japan should make its stance on this clear,” he told The Wall Street Journal earlier this month.
For Mr. Okubo, the matter is one of personal interest. As a former managing director at Morgan Stanley Securities, he told The Wall Street Journal earlier this month he has been discussing it with Japan’s banking watchdog, the Financial Services Agency, for about a year.
“They have been saying they are studying it, but they haven’t tried to take an oversight responsibility,” Mr. Okubo told The Wall Street Journal. He said he had also discussed the matter with the Ministry of Finance and the Bank of Japan. “Their answers weren’t clear either,” he said.
In a meeting of ruling Liberal Democratic Party lawmakers Wednesday, several legislators said some regulation of bitcoin was necessary.
“Bitcoin trade needs to be regulated. It allows business transactions in complete anonymity. Transactions that cannot be traced even by authorities are problematic from the point of view of law and order,” said Takuya Hirai, chief of the LDP IT strategy task force.
Mr. Hirai said rules should be coordinated with other countries, but said talks with overseas regulators haven’t been held yet. He also said the LDP has no specific timetable in mind for bitcoin regulation.
Meanwhile, others questioned the need for government intervention. One lawmaker said no complaints have been received at the Consumer Affairs Agency over the Mt.Gox collapse and pointed out that the vast majority of Mt. Gox’s clients are non-Japanese.
But the same lawmaker also noted that the risk of bitcoin being used for illicit transactions and tax evasion would be reason enough to put some regulation into effect.
While Mr Okubo agrees with previous comments from the FSA that bitcoin isn’t to be regarded as a currency, he said the FSA, must be at least partly responsible in regulating bitcoin, as it could be seen as a financial instrument.
Some other issues Mr Okubo seeks clarification on, according to his letter, include the government’s approach to bitcoin’s potential use in money laundering. He is also asking whether regular banks can handle bitcoin and whether securities firms can create products to include bitcoin in their portfolio.
In questions with potentially direct bearing on the Mt.Gox situation, Mr. Okubo is requesting clarification on the legality of bitcoin exchanges in Japan, whether they need to be licensed and whether they could be charged with fraud.