The Government of India appears to be convinced that cryptocurrency Dangerous proposition. With serious implications for crime, terrorism, money laundering, tax evasion, etc., cryptocurrencies enable relatively invisible transactions. Another concern is that the crypto craze is being created out of purely speculative investments. The eventual bursting of such a bubble will cause great harm to the people. Furthermore, crypto poses a threat to the state’s macro-economic role. The government, on the other hand, wants to avoid any techno-unfriendly imagery. Caught in this dilemma, it proposes that cryptocurrencies be banned, but crypto assets be legalized and strongly regulated. In this way, the problem of invisible value transactions is taken care of, the interests of investors are protected, and the tech industry’s demand is half met.
However, this ‘solution’ is based on a flawed premise, making it unusable in the medium to long term. The distinction between an asset and a currency may not be so legal as it is about the underlying feature of the asset or currency that is considered an asset or currency. Land, gold and stock do not lend themselves to become common medium of exchange as these assets are not easily divisible and portable. On the other hand, crypto is more divisible and portable than physical currency. Once legalized, the movement of crypto assets to become a medium of exchange will stop.
underlying value
The same argument can be made in another way as well. Crypto assets are either ‘purely speculative assets’ or have some inherent value, such ‘values’ may only be included in their future as a medium of exchange. Either way they are very problematic. Purely speculative assets have zero underlying value (unlike assets like land and gold). Regulators keep an eye on purely speculative elements of any asset market, considering them dangerous. The 2008 financial crash occurred largely because some ‘assets’ lost all relation to any sort of underlying value. When that happens, it’s just a bubble waiting to burst, which seriously hurts people. If the government legalizes purely speculative assets, it gives a green signal to investors to invest in it and fly in the bubble. When the bubble bursts, the ruling government may have to pay a heavy political price.
Or there is some ‘inherent value’ in crypto. This value can only be in the context of the expectation that the crypto asset will eventually gain wide acceptance as a currency. Such expectation actually has a good basis in the fact that crypto is favored as a currency by many powerful groups because it is very private and less amenable to regulatory oversight. It basically removes the state from its current position at the center of the monetary system. So the question is: By legalizing crypto assets, is the government trying to promote this ‘inherent value’ of crypto as a currency of the future with these ‘unique characteristics’? Apparently not, as it wants to ban crypto as a medium of exchange because of these characteristics. Therefore, in legally recognizing crypto assets, the government is either promoting a dangerous ‘purely speculative asset’ that, when the bubble bursts, will cause damage all around; Or it is promoting the ‘inherent value’ of crypto assets themselves in terms of their unstoppable eventual conversion into currency.
not a technical decision
The argument that crypto assets need to be legitimized to promote blockchain technologies and for the future is weak, if not bogus. Legalizing cryo assets primarily to support blockchain technology is like signing off on the use of space as a new frontier of war as it will boost India’s space industry. Blockchain has thousands of applications besides crypto. As an alternative to private cryptocurrencies, various innovations and services are indeed possible, including using blockchain on top of the monopoly platform of central bank digital currency and in the realm of decentralized finance.
The actual decision of the government is not about supporting new technology. Some groups and people want the state to be out of the monetary system mostly because it serves their interests. Since society is now in a position to decide whether the future of money will be public or private, it is for the government to decide which side it will leave behind.
The argument for allowing both public and private currencies to coexist, leaving it to the ‘choice of the people’, is also misleading. Dissatisfied with the distributive potential inherent in powerful public currency systems. All of them will immediately adopt and move to private currencies. Their combined economic weight would ensure the overwhelming dominance of private currencies over the public money.
Read also | Private cryptocurrencies pose immediate risk to customer safety, potential for fraud: RBI
It is true that India’s decision alone will not determine the issue. But China has already banned crypto, the decision that India takes at this stage matters a lot.
Parminder Jeet Singh works with Bangalore based NGO IT for Change
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