From the start of November, the online virtual currency bitcoin has constantly appreciated. On November 18, its exchange rate to the U.S. dollar hit a record high of $569 per bitcoin. On the same day, in what became the cause of the rapid appreciation, the U.S. Senate Committee on Homeland Security and Governmental Affairs held a hearing on the risks of virtual currencies such as bitcoin, throwing the currency into the limelight.

Electronic money such as bitcoin performs the functions of payment and circulation in the form of data, card and electronic bills. In China, margins for security futures products and excess reserves paid by a third party take on the features of primary electronic money. Only when all kinds of virtual currencies come into being, however, will the central bank's right to issue paper money be challenged.

Bitcoin, despite being an advanced and relatively refined form of virtual money, more closely represents an investment than a currency and it cannot substantially affect the monetary system.

In other words, it has not yet fully conformed to the definition of money. In the broad sense, currency is a commodity for exchange, circulation, value measure, payment and value storage. However, bitcoin is mainly used in exchange and investment. It still plays a limited role in payment, the most important function of currency. In addition, bitcoin is mainly exchanged on the Internet and rarely used offline.

The explosion of Internet technology has given birth to virtual currencies, which have exerted a significant influence on the refinement and circulation of virtual currency. Nonetheless, in the foreseeable future, bitcoin is not strong enough to topple the modern currency system. The central bank still has the sole right to issue paper money and electronic currency in China. Without the backing of an issuing body and state credit, a new currency can't be sustained.

The emergence of virtual currencies is a reflection of grass-root service innovation, which can better meet the money demand in an Internet era. However, if virtual currencies begin to be popularized, and systematic risks are accumulated, supervision departments will have to intervene.

Although it will likely take a long time before bitcoin replaces physical currency, its growing role will pose a challenge to the traditional monetary and financial system. Currently, governments across the world are trying to make sure that the trading of bitcoin doesn't violate laws and regulations on money transactions, and prevent it from being employed for illegal purposes such as money laundering and drug trade.

In the United States, some have suggested that virtual currencies like bitcoin be included into the existing monetary supervision mechanism. Consequently, authorities' supervision would have a profound impact on the prospects for virtual currencies.

This is an edited excerpt of an article by Yang Tao, a financial commentator, published in People's Daily