View: Cryptocurrencies are almost impossible to regulate


In the 20th century, one of the easiest ways to transfer and trade valuables was through the clearing trade process. A refugee fleeing Nazi Germany could carry the equivalent of thousands of dollars thanks to rare postage stamps stuck on a used envelope. Once at a shelter, these stamps could be exchanged for cash, other stamps, or exchanged for something else.

The money laundering system was efficient and discreet, but it did not destabilize the financial system. But when carriers are not refugees, the object of the cleared trade is not physically traceable, and the sheer volume of such transactions can jeopardize “macroeconomic and financial stability”, such a system is of concern. This is Shaktikanta Das’ perspective on private cryptocurrencies. And the Governor of the Reserve Bank of India (RBI) is right. Since March 4, 2020, when the Supreme Court showed misguided haste in overturning the RBI’s April 2018 circular that prohibited regulated banks from processing cryptocurrency transactions, the industry has taken the initiative to develop at a breakneck pace.

Earlier this year, Sathvik Vishwanath, CEO of crypto-asset and blockchain trading firm Unocoin, wrote that “the government has tried to ban pornography, but anything that is accessible to anyone, or made available in the cloud, can never be completely tamed. The same goes for decentralized and open source cryptocurrencies.… ”One wonders why Vishwanath hasn’t also compared cryptocurrencies to something as accessible as, say, cocaine.

For its part, the government, concerned about the machine but not its effects, would consider adopting a “nuanced” vision of an emerging technology, allowing cryptocurrencies to invest like stocks, bonds and money. gold, while prohibiting their use as legitimate transaction currency. This, along with other issues related to the cryptocurrency, were apparently discussed at a high-level meeting chaired by the Prime Minister on Saturday. Assuming that this “no money, but assets” approach is the result of misunderstanding and not insincerity, there are at least two notions that need to be corrected. First, cryptocurrency is not technology. Blockchain is.

And blockchain, as Das pointed out on Tuesday, continues to thrive and expand outside of the heady world of cryptocurrencies. It is used by companies for such mundane and common things as contract management, raw material sourcing verification and authentication, digital identification, loyalty and rewards management programs, sharing data and a whole host of other activities that have little or nothing to do with speculative investing. On the contrary, the growth and acceptance of blockchain is expected to continue to grow, even in countries like China where cryptocurrencies have been banned altogether. Second, prohibiting the use of cryptocurrencies as a medium of exchange is a redundant exercise.

Like rare postage stamps, their value is tied to their cleared exchange value at any given time. They never question the supremacy of a fiat currency, because without it, these cryptos would lose not only their negotiable value but also their raison d’être. Indeed, cryptocurrencies, more than promoting the objective of transparent payments, only help and encourage the objectives of a central bank like the US Federal Reserve, guaranteeing the supremacy of the dollar through a new avatar. In any case, central bank digital currencies (CBDCs) are more than sufficient to ensure cheaper, faster and more secure transmission of digital currency.

But more worrying than the lack of understanding is the scant attention, remarkable for its absence, given to the challenges of monitoring and control. Das, aware of the threat to capital controls and the overall stability of the financial system – in which banks and non-bank financial corporations (NBFCs), even if not fully disintermediated, may end up enduring the most of the financial risk without sufficient collateral and adequate returns – adamantly opposed any form of compromise. In a country where it has been impossible to impose an anti-money laundering apparatus, or an infrastructure to protect both institutions and citizens against fraud, is it so hard to imagine a future in which crypto exchanges money are used by more than ordinary or garden criminals, and less honest public figures, to play with the system and evade government restrictions? The truth is, cryptocurrencies are almost impossible to regulate.

They were built to facilitate cross-border trade and bypass the burdensome safeguards of the financial system. This is what makes them so vibrant, precious and volatile. Banning them is easier than setting up an expensive and extensive surveillance architecture. It is also true that GoI does not have to decide the fate of the cryptocurrency. In Plato’s Gorgias in the 4th century BC. GoI would do well to heed his lesson and let the most knowledgeable RBI take care of it.


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