Regulating Digital Currencies: Bringing Bitcoin within the Reach of the IMF
Plassaras, Nicholas A., Chicago Journal of International Law
This Comment examines the potentially destabilizing effects of emerging digital currencies on the international foreign currency exchange market. Specifically, it examines "Bitcoin," a decentralized, partially anonymous, and largely unregulated digital currency that has become particularly popular in the last few years. This Comment argues that the International Monetary Fund, the institution responsible for coordinating the stability of foreign exchange rates, is ill-equipped to handle the widespread use of digital currencies in the foreign currency exchange market. It highlights the inability of the Fund to intervene in the event of a speculative attack on a currency by Bitcoin users. This Comment concludes by suggesting two interpretations of the Fund's incorporating document, the Articles of Agreement, that would allow it to intervene in the event of such an attack.
The birth of the Internet heralded in a new era of cheaper, faster, and more efficient commercial transactions. This new type of commerce-also known as "e-commerce"-has brought with it a number of new and complicated social, legal, and economic challenges. In the last twenty years, a wealth of scholarship has been devoted to addressing these concerns.
But one area of research has fallen into neglect: the development of electronic (or Internet-based) currencies. In the 1990s, when the Internet was still fairly new, a sizeable amount of scholarship was devoted to exploring ways in which the Internet would change how we use and conceptualize money. Many theorized that the advent of the Internet would cause a new kind of money to be born.1 Rather than carrying around paper bills or metal coins, people would instead switch to digital currency: electronic money stored on a computer and transferred via the Internet. But as the newness of the Internet began to wear off, so did scholars' interest in its potential to generate new forms of currency. Since then, little has been done to trace the growth of digital currencies in our increasingly computerized and complex digital economy.
Recently, however, particular attention has been given to an emerging digital currency called the "Bitcoin." Bitcoin is a private digital currency traded online via a peer-to-peer network.2 Bitcoins are stored as electronic files on a computer's hard drive, and can be accumulated or transferred just like an e-mail3 Software algorithms embedded in the online Bitcoin network protect against fraud and ensure that the files are not counterfeited. Bitcoin was designed to operate without the need for intermediaries or any central issuing authority.4 It does not rely on a central bank to issue it, a commercial bank to store it, or a credit card company to transfer it. Instead, users interact with each other direcdy and anonymously,without third-party intervention.5
Although only four years old, Bitcoin's ability to serve as regulation-free virtual cash poses a number of difficult legal questions due to its transnational and largely decentralized nature.6 While it has yet to gain the widespread acceptance enjoyed by other major international currencies, regulatory solutions for the challenges it presents will become necessary if Bitcoin continues to grow in popularity. Though some scholarship has been devoted to domestic regulation of Bitcoin transactions,7 virtually no attention has been given to regulating Bitcoin at the international level.
The International Monetary Fund (IMF) is the international institution tasked with coordinating the international foreign currency exchange market.8 It sets minimum standards for what member nations can do to their individual currencies in order to preserve global economic stability. Like almost every international institution, the IMF's rules apply only to nations that have agreed to adhere to them. Every country-with the exception of North Korea-is a member of the IMF and, therefore, bound by its regulations. …