currencies
'Funny money' has officially entered the real world
March 25, 2013: 11:00 AM ETNew federal regulations make online currencies act more like traditional forms of cash.
FORTUNE – Remember those days when Monopoly money was just play cash that bought everything in the game from railroads to houses? When the game was over, the value of that colorful paper currency spiraled to zero. Now with online currencies, the game never really ends. The Internet never shuts off, so the value of money circulating through cyberspace is always worth something.
Last week, new U.S. government rules regulating online currencies affirmed the value of what was previously passed off as funny money. Now companies that issue or exchange online cash would have new bookkeeping requirements. For instance, transactions of more than $10,000 would have to be reported.
While one of the big draws of virtual currencies is that they're independent and generally sheltered from the government's watch, the new rules are unlikely to ruin their allure. If anything, they effectively pull the currencies offline and into the mainstream world of finance, making them infinitely more valuable.
MORE: Will rival bidders entice Michael Dell?
These new regulations come as the popularity of virtual currencies rise, fueled by online merchants that have come up with their own tender and forms of payment -- indeed, a stark contrast from years ago when the European Union thought it was only wise to run the economy on a single currency, the Euro. Needless to say, big problems have followed, and many have wondered if the answer is having multiple competing currencies.
In 2011, Facebook (FB) launched Credits as the de facto form of currency. Though now largely defunct, it's used for purchases made inside games hosted by the social networking site. Last month, Amazon (AMZN) unveiled Amazon Coins, a virtual currency that could be used for purchasing apps, games, and in-apps items on Kindle Fire.
As The Wall Street Journal notes, it's unclear if the new regulations will impact Amazon. One thing is almost certain, though: It will regulate Bitcoin, the fastest-growing online currency. Launched in 2009, the online currency works almost like real money. It can be used to buy anything from upgrades on Reddit to pizza. And as Cyrus Sanati reported in December, it's increasingly used to conduct all sorts of shady business, making the anonymous sale and purchase of everything from drugs to guns possible.
More specifically, the new regulations come at the urging of federal authorities. In April 2011, the FBI recommended that third-party exchanges of Bitcoins be forced to follow the same anti-money laundering rules that banks are supposed to follow.
MORE: Bitcoin looks primed for money laundering
In the coming years, expect more regulations, experts say. "The government is just catching up," says Edward Castronova, a gamer and telecommunications professor at Indiana University.
The Chinese have been a step ahead of the U.S. In 2009, authorities issued new regulations aimed at restricting the trade and use of online money on worries that currencies used in online games had become so commonplace that they could impact, and possibly destabilize, the real economy.
In the U.S., future rules could either deepen the legitimacy of online currencies or destroy them entirely, depending where lawmakers go from here, Castronova says. Whereas the latest anti-money laundering regulations help their credibility by treating them similarly to traditional money-order providers, levying taxes and transaction fees obviously would hurt their value.
To be sure, the pot of virtual money is nowhere as liquid as traditional cash in the global financial system. But while they play a relatively small role, at least for now, bankers nonetheless view their rise as potentially dangerous to the health of the economy. Because virtual currencies aren't backed by a central bank or controlled by a central administrator, their values are vulnerable to wild swings.
In 2011, the American Bankers Association asked the Consumer Financial Protection Bureau to apply consumer financial protection laws uniformly, regardless of whether it's a traditional bank or nonbank payment providers. The fact that bankers are watching online money signals they have potential to help or destroy all that exists in the real world.
-
It's time to break up the Euro
Don't believe the politicians. The common currency can't survive as is. Here's the right way to handle a split.
FORTUNE – Roger Bootle prides himself on being something of a modern-day Nostradamus -- with good reason. In 1999 the British economist predicted a bursting of the dotcom bubble, and in his 2003 book, Money for Nothing, he forecast a worldwide crash in housing that would prove dire for the financial system. MORE
Shawn Tully, senior editor-at-large - Sep 25, 2012 5:00 AM ET -
Forget patriotism. Dump the dollar, go long the loonie.
Barring any major surprise concessions out of Washington, the U.S. dollar is set up to continue crashing throughout this year. Here's how to play it.
By Daryl Jones, Hedgeye
FORTUNE -- I'm a born and bred Canadian. Despite my nationality of birth, after living in the United States for upwards of the last fifteen years, I can quite confidently say this is a great country. At Hedgeye, we spend a lot of MORE
Apr 22, 2011 9:39 AM ET -
Don't bury the dollar just yet
Yes, the dollar is showing its age. But it's a tough old geezer and it may hang on longer than you expect -- indeed, longer than we can easily afford.
The value of the U.S. currency has dropped by more than a third over the past decade (see right), as America fought two wars and embarked on a massive borrow-and-consume binge. With the Federal Reserve now buying U.S. debt for the MORE
Colin Barr - Mar 11, 2011 6:37 AM ET -
Why we care that the Thai baht is on fire
Currencies are soaring in the parts of the world that helped the global economy recover. Will they now become what hampers it?
At a time when the world's advanced economies stumble over huge debts and deficits, developing nations have been thriving. Emerging economies, especially around Asia, have led the global economic recovery by selling more goods and services abroad and by benefiting from the rebound in prices for everything from MORE
Nin-Hai Tseng, Writer - Feb 4, 2011 12:31 PM ET -
10 ways to play the spike in global inflation
Inflation is on the rise in many parts of the world, but there are ways to profit from it through key trades in commodities, currencies and global equities.
By Darius Dale, Hedgeye
In recent weeks and months, analysts at Goldman Sachs (GS) and JPMorgan (JPM) have been reneging on their bullish emerging markets as a result of hawkish monetary policy and instead are predicting outperformance by US MORE
Jan 18, 2011 5:00 AM ET -
Three ways to stabilize the euro
The European debt crisis has weakened the euro considerably, but there are opportunities to help put it back on even ground before it's too late.
When the euro was introduced in 1999, proponents of the official currency of the eurozone associated it with economic progress and a chance for Europe to increase trade and investments throughout the region. Since then, it's become the world's second-most actively traded currency, next to the MORE
Nin-Hai Tseng, Writer - Dec 15, 2010 5:00 AM ET -
Fixing the dollar: Why an international accord won't work
The days of international cooperation among central bankers to rebalance the currency market are over.
In 1985, finance ministers of what were then the world's five biggest economies gathered at New York City's Plaza Hotel, where they signed the Plaza Accord, an agreement on the orderly devaluation of the U.S. dollar against the Japanese yen and the German mark. The accord has generally been hailed a success as far as MORE
Nin-Hai Tseng, Writer - Oct 13, 2010 9:36 AM ET -
Dollar war heats up
Global tensions are rising, and the weapon of choice is currency.
Brazil's finance minister has spoken flatly of an "international currency war." U.S. Treasury Secretary Tim Geithner was less inflammatory but warned in a speech this week that countries acting to make their currencies cheaper could lead to a "damaging dynamic."
Everybody wants export powerhouse China to let the yuan rise, but Premier Wen Jiabao lashed out this week, saying a rapid increase could cause a destabilizing MORE
Colin Barr - Oct 8, 2010 10:44 AM ET -
Playing chicken with currencies
Why bother with mere trade tensions when you can have an "international currency war"?
That's what Guido Mantega, Brazil's finance minister, calls the efforts of market-intervening central bankers. Japan, Switzerland and others have been selling their currencies in a bid to make their goods cheaper in foreign markets and prop up their faltering economies.
As it happens, Brazil has been among those playing the currency intervention game, in a bid to counter MORE
Colin Barr - Sep 27, 2010 4:33 PM ET
