Recent news reports indicate that Australia is seeking to crackdown on money laundering and terrorism financing with plans to regulate bitcoin exchanges, a move that follows on the heels of attempts in China and Japan to regulate digital currencies. Authorities have reportedly described their efforts as natural extensions of their supervisory mandates:
“The threat of serious financial crime is constantly evolving, as new technologies emerge and criminals seek to nefariously exploit them. These measures ensure there is nowhere for criminals to hide,” said Australia’s Minister for Justice Michael Keenan in a press release.
The Australian government proposed a set of reforms on Thursday which will close a gap in regulation and bring digital currency exchange providers under the remit of the Australian Transactions and Reporting Analysis Centre (AUSTRAC).
Hard to argue with that. But I’ll be curious to see how much coordination subsequently arises internationally, especially in forums like the Financial Action Task Force and OECD. China is regulating bitcoin for at times far different reasons than Australia and Japan. Perhaps most important, digital currencies provide a means of potentially circumventing capital controls designed to bolster and protect the renminbi. Australia and Japan—and likely others—will, in contrast, be focused on the more basic challenge of market integrity.
As a result, it is quite possible that the regulatory intensity of China’s supervision of the currency could track, at least in part, macroeconomic conditions. If capital inflows are strong, incentives to regulate digital currencies may weaken, allowing for leeway (and even regulatory forbearance). By contrast, in other countries, we may see a less strict, but more consistent regulation of digital exchanges as part of a supervisory upgrade designed to meet the new challenges of digital markets infrastructures.