Alongside advancement in technology, money has also changed resulting in today’s digital currencies. Crypto currencies have become a widespread form of payment around the world due to their low cost, high-speed transferability, and a decentralised tracking network that ensures secure transactions and a high degree of transparency.
Much of the success of the technology revolution over the last several decades has been due to governments either choosing not to regulate or imposing relatively light touch regulation, or to innovation just occurring faster than regulators could keep up.
However, regulators and legislators appear to be increasingly willing to impose government intervention as soon as an idea makes news. Crypto currency has piqued the interest of both federal and state governments in the United States. Many federal agencies and policymakers have commended the technology as a crucial component of the United States’ future infrastructure, and they have recognised the importance of the United States maintaining a leadership position in the technology’s development. Therefore, the Institute of Policy Innovation (IPI) issued a paper on “Regulators Going Off the Chain on Cryptocurrency”.
The following are a few salient features of the paper:-
According to Forbes magazine, members of Congress have submitted 18 bills to regulate or otherwise involve the government in blockchain or crypto currencies. According to the National Conference of State Legislatures, seventeen states have done the same. The paper explains the meanings of blockchain and crypto currency.
Digital currency is an excellent application for blockchain technology. The transaction list enables people who don’t know each other to conduct secure transactions without the need for a third-party validator, such as a bank.
This reduces the costs of employing a third party, improves security because no critical information is transmitted, and reduces the likelihood of stolen identities and financial harm.
However, blockchain does not only eliminate the middlemen; it also prevents the government from taking a piece of the money. And it’s possible that’s why regulators are getting so thrilled about blockchain.
Digital or virtual currencies are a means of exchange, but they are not money. Crypto currencies, unlike dollar bills and coins, are neither issued nor backed by the United States government or any other government or central bank. Some may be perplexed by the lack of a physical token to count and hold. Rather, Bitcoin and other crypto currencies are a type of digital currency used in electronic payment transactions–there are no coins, paper money, or banks involved; there are zero to minimal transaction fees; transactions are fast and not geographically limited; and transactions are anonymous, just like using cash.
Federal regulatory agencies in the United States have adopted a variety of policies governing the treatment of crypto currency transactions, investment profits, payment services, and other digital asset-related activities. In the United States, crypto currency exchanges such as Coinbase (COIN) are legal. They are governed by the Bank Secrecy Act (BSA), a law that governs the activities of financial institutions and payment processors.
Because of the lack of control and illicit ties, certain legislators and officials may oppose its usage, and many have enacted legislation under their country’s anti-money laundering and counter-financing of terrorism laws (AML/CFT) in an attempt to reduce its use for these objectives.Countries like US, Canada, countries in the EU, Australia and El Salvador have legalized the use of crypto currency.
Almost 42 countries have put implicit bans on certain crypto currency uses in their States — e.g., Bahrain, Burundi, Central African Republic, Gabon, Kuwait, Libya, Macao, Maldives, and Vietnam.
Few countries have imposed absolute bans on crypto currency — e.g., Algeria, Bangladesh, China, India, Egypt, Iraq, Morocco, Nepal, Qatar and Tunisia. Reasons that some nations have banned crypto currency have claimed that it is being used to divert money to illegitimate sources and that the emergence of crypto currency could destabilise their financial systems.
In the midst of all the turmoil surrounding crypto currency in Pakistan, a committee of the State Bank of Pakistan (SBP) has suggested that it and other related activities be banned in the country.
Moreover, Pakistani Federal Investigative Agency (FIA) has sent an official notice to the crypto exchange, Binance, which has been named in a huge scam. The FIA will look into accusations from Binance consumers who claim the crypto exchange forced them to move assets into unknown third-party wallets. It is estimated that the swindle cost consumers a total of nearly $100 million (roughly Rs 739 crores). A notification has also been sent to Binance headquarters in the British overseas jurisdiction of Cayman Islands, requesting responses. FIA has also recently started a crackdown on all crypto currencies in the country.
Crypto currency can protect the state from inflation as it is available around the globe. Therefore, if the demand rises its value will also rise, which will prevent inflation. Furthermore, one of the main advantages of crypto currency is that it is largely decentralized. It helps in keeping the currency monopoly free and in check so that no single organization can dictate its flow and value. Moreover, it can be exchanged easily or it’s a fast way to transfer money/funds. It’s also secure and private. However, this causes the difficulty to track down or monitor; Bitcoin has been previously used for criminal transaction and money laundering and some people use it to mask their illegally obtained money.
Way Forward. The government must enact regulations governing the licensing of crypto currency exchanges. By registering crypto exchanges, the government may gain access to consumer data and may detect and follow any suspicious transaction. Pakistan needs a policy direction, enabling legislation, market infrastructure including deployment of distributed ledger, clarity on accounting and taxation, reputed foreign partners, a designated regulator and of course sophisticated professionals who will run the show.
(The writer is a law officer and works for Law Research Centre)
Copyright Business Recorder, 2022