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View: Cryptocurrencies are almost impossible to regulate

Ateesh Tankha
Former head, Citi Merchant Services, US
Synopsis
​​The system of money-laundering was efficient and discreet, but it did not destabilise the financial system. But when the carriers are not refugees, the object of countertrade is not physically traceable, and the sheer volume of such transactions can challenge ‘macroeconomic and financial stability’, such a system is a cause for concern.
ET CONTRIBUTORS
Nov 17, 2021, 11:54 PM IST
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In the 20th century, one of the easiest ways to transfer and exchange articles of value was through the process of countertrade. A refugee fleeing Nazi Germany could carry the equivalent of thousands of dollars through rare postage stamps pasted on a used envelope. Upon reaching a safe haven, these stamps could be traded at an exchange for money, other stamps, or bartered for something else. 

The system of money-laundering was efficient and discreet, but it did not destabilise the financial system. But when the carriers are not refugees, the object of countertrade is not physically traceable, and the sheer volume of such transactions can challenge ‘macroeconomic and financial stability’, such a system is a cause for concern. This is the view of Shaktikanta Das vis-à-vis private cryptocurrencies. And the Reserve Bank of India (RBI) governor is right. Ever since March 4, 2020, when the Supreme Court showed an injudicious haste in striking down RBI’s April 2018 circular that prohibited regulated banks from dealing with cryptocurrency transactions, the industry has taken it upon itself to grow at a frenetic pace. 

 

Earlier this year, Sathvik Vishwanath, CEO of the cryptoassets trading and blockchain company Unocoin, had written that ‘the government tried banning porn, but anything that is accessible to everyone, or is made available on the cloud, can never be fully tamed. The same goes with the decentralised and open source-based cryptocurrencies.…’ One wonders why Vishwanath did not also compare cryptocurrencies to something as accessible as, say, cocaine. 

On its part, the government, mindful of the machine but not its effects, is reportedly considering taking a ‘nuanced’ view of a nascent technology, enabling cryptocurrencies as investments like shares, bonds and gold, while prohibiting their use as legitimate transactional currency. This, along with other cryptocurrency-related issues, was apparently discussed at a high-profile meeting chaired by the prime minister on Saturday. Assuming that this ‘not currency, but assets’ approach is the result of misunderstanding and not disingenuousness, there are at least two notions that need to be corrected. First, cryptocurrency is not a technology.Blockchain is. 

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The system of money-laundering was efficient and discreet, but it did not destabilise the financial system. But when the carriers are not refugees, the object of countertrade is not physically traceable, and the sheer volume of such transactions can challenge ‘macroeconomic and financial stability’, such a system is a cause for concern. This is the view of Shaktikanta Das vis-à-vis private cryptocurrencies. And the Reserve Bank of India (RBI) governor is right. Ever since March 4, 2020, when the Supreme Court showed an injudicious haste in striking down RBI’s April 2018 circular that prohibited regulated banks from dealing with cryptocurrency transactions, the industry has taken it upon itself to grow at a frenetic pace. 
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And blockchain, as Das pointed out on Tuesday, continues to thrive and grow outside the heady world of cryptocurrencies. It is used by companies for things as mundane and routinely important as the management of contracts, the verification and authentication of raw material sourcing, digital identification, retail loyalty and rewards management programmes, data-sharing, and a whole host of other activities that have little or nothing to do with speculative investments. If anything, blockchain’s growth and acceptance is likely to grow undiminished, even in countries like China where cryptocurrencies have been banned altogether. Second, prohibiting the use of cryptocurrencies as a medium of exchange is an exercise in superfluity. 
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