BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 129|
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THIRD READING
Bill No: AB 129
Author: Dickinson (D)
Amended: 5/22/14 in Senate
Vote: 21
SENATE BANKING & FINANCIAL INSTITUTIONS COMM. : 7-1, 6/4/14
AYES: Evans, Block, Correa, Hill, Roth, Torres, Vidak
NOES: Morrell
NO VOTE RECORDED: Hueso
ASSEMBLY FLOOR : 75-0, 1/29/14 - See last page for vote
SUBJECT : Lawful money
SOURCE : Author
DIGEST : This bill repeals the code section (Corporations Code
[CORP] Section 107) prohibiting the issuance or placement into
circulation, as money, anything other than the lawful money of
the United States.
ANALYSIS : Existing federal law prohibits the manufacture of
counterfeit United States currency or the alteration of genuine
currency to increase its value.
Existing state law prohibits a corporation, flexible purpose
corporation, association, or individual from issuing or putting
into circulation, as money, anything but the lawful money of the
United States.
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AB 129
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This bill repeals the code section (CORP Section 107)
prohibiting the issuance or placement into circulation, as
money, anything other than the lawful money of the United
States.
Background
The concept contained in CORP Section 107 originates with
California's first Constitution, adopted in 1849. That
constitution prohibited the creation and issuance of paper to be
used as money by any bank - an attempt to ensure that only the
federal government could issue lawful currency. During a series
of revisions to California's Constitution in the early 1970s,
the prohibition against placing currencies other than lawful
money of the United States into circulation was placed in the
CORP. It has remained there ever since, essentially unchanged.
Alternative currencies . Although it appears that no state
department or agency has ever initiated an enforcement action
for a violation of CORP Section 107, this bill's author is
concerned that CORP Section 107 may restrict the development and
use of alternate currencies. Alternative currencies include
virtual currencies (Bitcoin, Ripple, Peercoin, Primecoin, and
others) and community currencies (Davis Dollars, Sonoma County
Community Cash, Bay Bucks, and others).
Virtual currencies are unique, typically encrypted computer
files that can be converted to or from a government-backed
currency to purchase goods and services from merchants that
accept virtual currencies. Virtual currency is accepted as
currency by some businesses, exchanged for cash by others, and
can also be purchased as an investment. Bitcoin is perhaps the
most well-known of virtual currencies, and representative of
some of the pitfalls of owning cyber cash. In February 2014,
Mt. Gox, the largest and best-known Bitcoin exchange, announced
that several hundred million dollars in Bitcoin had been hacked
and stolen. Within a week of the announcement, Mt. Gox had
declared bankruptcy. A similar fate befell a much smaller
Bitcoin exchange called FlexCoin, which shut down after hackers
stole $600,000 in Bitcoin from its servers. Although the
currency survived the bankruptcies of these exchanges, some have
pointed to Bitcoin users' vulnerability as support for
predictions that Bitcoin is too fragile to survive long-term.
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AB 129
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Community currencies are essentially vouchers or cash
equivalents. They are purchased for cash, sometimes at a
discount (i.e., $5 buys you $10 in community cash) and sometimes
at face value ($5 in US currency buys you $5 in community
currency). Typically, community currency is used as a way to
encourage purchases at local merchants; because the currency is
only accepted by merchants within the community currency
network.
Department of Business Oversight (DBO): consumer advisory . DOB
is in the process of determining whether alternative currency
exchanges fit into a traditional currency regulatory framework.
DBO is, however, concerned about the risks that certain
alternative currencies can pose.
In April 2014, DBO issued a consumer advisory, warning
Californians of the risks of virtual currencies, also known as
crypto-currencies, virtual money, or digital cash. In its
consumer advisory, DBO characterized virtual currency
transactions as high-risk, due to the vulnerability of cyber
attacks, and observed that because virtual currency exchanges
are unregulated, consumers have little recourse to recover lost
funds. Unlike deposits at insured banks and credit unions,
there is no virtual currency deposit insurance.
DBO's consumer advisory also lists the following risks:
There are few, if any, consumer protections without licensing.
Virtual currencies are not regulated by any state in the
United States, nor by the federal government.
Virtual currency is difficult to recover, if stolen. If
virtual currency is stored on an electronic device that is
stolen, lost, or destroyed, there may be no way for the owner
to recover the currency stored on the lost, stolen, or
destroyed device.
Virtual currency represents an emerging technology, which is
evolving rapidly. A currency accepted today may be obsolete
tomorrow.
The value of virtual currency can fluctuate widely. Between
March 2013 and March 2014, a single Bitcoin sold for as low as
$100 and as high as $1,200.
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Virtual currencies carry with them uncertain tax implications.
Under a recent Internal Revenue Service ruling, all virtual
currencies will be treated as property for tax purposes, and
any value gains must be declared and will be taxed as a
capital gain.
Virtual currencies have been associated with criminal
enterprises, including illegal drug transactions, arms
trading, money laundering, and other criminal activity. To
the extent a virtual currency exchange is shut down by law
enforcement, users of that virtual currency risk losing their
investments.
Comments
According to the author, "AB 129 repeals Corporations Code
Section 107 which is an outdated prohibition on the issuance and
use of 'anything but the lawful money of the United States.'
According to the literal meaning of the statute anyone that
issues or uses digital currency, community currency, or perhaps
even reward points is in violation of the law. However, no
prosecutions, arrests or enforcement actions have occurred
pursuant to this statute."
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
ASSEMBLY FLOOR : 75-0, 1/29/14
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom,
Bocanegra, Bonilla, Bonta, Bradford, Brown, Ian Calderon,
Campos, Chau, Chávez, Chesbro, Conway, Cooley, Dababneh,
Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Frazier, Beth
Gaines, Garcia, Gatto, Gomez, Gonzalez, Gorell, Gray, Grove,
Hagman, Hall, Harkey, Roger Hernández, Holden, Jones,
Jones-Sawyer, Levine, Linder, Lowenthal, Maienschein, Mansoor,
Medina, Melendez, Morrell, Mullin, Muratsuchi, Nazarian,
Nestande, Olsen, Pan, Patterson, V. Manuel Pérez, Quirk,
Quirk-Silva, Rendon, Ridley-Thomas, Rodriguez, Salas, Skinner,
Stone, Ting, Wagner, Waldron, Weber, Wieckowski, Wilk,
Williams, Yamada, John A. Pérez
NO VOTE RECORDED: Buchanan, Fox, Gordon, Logue, Perea
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MW:nl 6/6/14 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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