By Heather Morton
California is the first state to enact legislation regarding digital and virtual currencies such as Amazon Coins, Bitcoin, Dogecoin, Starbuck Stars and Peercoin.
Also known as crypto-currencies, virtual currencies are digital representations of value. These currencies are not government-issued legal tender and generally do not have coins or paper money associated with them.
Digital currencies can be “closed-flow” or “open-flow.” Closed-flow currencies are used exclusively within online or video games and cannot be cashed out or exchanged for physical money, while open-flow currencies may be exchanged for government-issued tender.
California A.B. 129 repeals a statutory prohibition on the issuance or placement into circulation, as money, anything other than the lawful money of the United States. “Alternative currencies, from Starbucks Stars to Amazon Coins, are becoming increasingly common and prior to AB 129, these currencies were in violation of the law,” according to the bill sponsor, Assemblymember Roger Dickinson (D).
California is not the only state to address virtual currencies in 2014. Illinois H.B. 5886 would provide that virtual currency does not have legal tender status. The bill defines "virtual currency" as a medium of exchange that operates like currency in some environments, but does not have all the attributes of real currency.
Interested in learning more about digital currencies? NCSL’s Communications, Financial Services and Interstate Commerce Committee is sponsoring the “Crypto-Currencies: Changing the Way We Do Commerce” session on Wednesday, Aug. 20, at 3:30 p.m. at the NCSL Legislative Summit in Minneapolis.
Heather Morton is a program principal in Fiscal Affairs. She covers financial services issues for NCSL.