Neither ban nor regulate crypto

News: Millions of Indians are gambling on cryptocurrencies in the hope that its value will keep rising. This hope is based on the ultimate belief that they will be socially accepted as a valid medium of exchange

Hence, to dampen the enthusiasm for investment and speculation, instead of banning or regulating Cryptocurrencies, the Govt can simply announce that India will never permit cryptocurrencies to be currency.

What is the problem with the regulation of cryptocurrencies?

Regulation of cryptocurrencies as financial instruments is based on the fear of a systemic risk caused by events like the 2008 financial crisis. But, such policies have always led to excessive financialisation, reckless money supply and Wall Street control of economic policy, leading to huge disparities in societies.

Also, there is a ‘moral hazard’ risk of signalling official sanction of cryptocurrencies to speculators and implying government protection. This could lead to more people trading in cryptocurrencies. India does not have the resources and governance capacity to set up a new regulatory infrastructure to oversee the interests of speculators gambling in cryptocurrencies.

Hence, the Govt should neither legalise nor regulate cryptocurrencies.

And when it becomes very clear that the government will neither legalise nor regulate cryptocurrencies in India, speculative activity will reduce eventually, even if few investors lose in the process.

Source: This post is based on the article “Neither ban nor regulate crypto” published in The Hindu on 20^th Dec 2021.