It is fortunate that the Supreme Court has rejected an RBI circular preventing any entity regulated by it from processing cryptocurrency transactions. This meant that even though cryptocurrencies were not banned, their use was. The court ruling was based on the lack of proportion between the ban and the as yet unproven potential for damage to cryptocurrencies, which are not themselves prohibited. If the government were to impose a ban, the court’s decision would be rendered unsuccessful.
Instead of banning cryptocurrencies, the government should empower RBI to regulate them, not as substitutes for fiat money, but as commodities that can perform some of the functions of money – making payments, value in store, serve as a unit of account.
This does not mean that the Supreme Court has approved bitcoins and their assorted clones, whose hawking as fantastic investment options is the primary goal of many followers of the verdict. Fools are free to part with their money in whatever way they choose. Bitcoins have evolved enormously in value and only those who are financially the safest and who have the stomach for extreme risk would be invited to treat them as investment assets.
It is not because bitcoin exchanges are now free to operate that the court’s verdict is welcome. Bitcoin and its clones are just one type of token on the blockchain. There are several other types of tokens, including contracts and currencies, whose values are calibrated against a basket of the world’s major currencies, which could be created and would be of immense benefit to society. Fintechs could do wonders with blockchain – for example, reducing the cost of cross-border remittances from the minimum of 5% today to 1% or less.
The world desperately needs to free itself from America’s ability to arm the dollar, to prevent those who violate US sanctions from dollar networks. An exit is a blockchain-based currency, the value of which is calibrated against a basket of major world currencies, to settle international payments that do not involve a U.S. counterpart. RBI’s ban outlawed such an innovation.
This piece appeared as an editorial opinion in the print edition of The Economic Times.