Israel, however, appears to be taking a different approach.
Israeli regulators are not ignoring digital currencies, they are simply waiting to see what the rest of the world does about them.
Certain Israeli financial institutions are engaged in bitcoin transactions, and they would like to see clear guidance from regulators. However, the Bank of Israel, the Israel Securities Authority and government ministries have not said a word on the matter. Yet, this may be about to change.
Lack of applicable legislation
According to Haaretz, regulators do not feel the need to prohibit transactions related to digital currencies at this time. Attorney Shiri Shaham, who specializes in banking law, told reporters that there is no legislation in Israel today that could address bitcoin and similar digital currencies.
Therefore, the use of digital currencies remains legal, or 'unregulated' to be more precise. Shaham said:
“Bitcoin brings with it a lot of innovation that has not existed until now. Consequently, it’s no wonder that it was not in the wherewithal of lawmakers in Israel and around the world to foresee this development and address it.”
Lawyer Guy Lachmann points out that currency is defined as the country’s legal tender and since bitcoin is not recognized as legal tender anywhere in the world, it should not be seen as a currency.
Although Israel can apply existing money laundering legislation to questionable bitcoin transactions, there are still a number of issues that need to be addressed.
Taxation is perhaps the biggest problem. Traders must report their trading income to tax authorities, but there are some exceptions that might attract tax dodgers. In addition, value-added tax does not apply to the purchase of bitcoin.
Shaham believes the Bank of Israel should not ignore digital currencies, but she cautions that it should not adopt a conservative position either. She argues that there is nothing lawmakers can do to prevent trading in bitcoins, even if such trades are outlawed. She said:
“People who want to get their hands on bitcoin will always succeed, and it would be a pity if it were to occur in the shadows and not under the supervision of the banking system.”