Bitcoin gamble

The RBI steps in to suspend trading, but it should hasten regulation instead

Not long after China banned its banks from trading in Bitcoin, the RBI has issued cautions and some Indian agencies have suspended trading in response. This was apparently done to prevent clients from unknowingly falling foul of laws against money laundering and the financing of terrorism. But the freeze should be a temporary step pending the evolution of a clearer legal framework within which decentralised, anonymous digital currencies can operate. Because to hold off Bitcoin and other completely dematerialised currencies would be a Canute-like gesture, a vain attempt to stop a force of nature like the tide.

A steep rise in the value of Bitcoin this year has suddenly made it the world's dearest currency, almost 1,000 times more expensive than the US dollar. It indicated the confidence of markets in digital currencies and the value of the innovative transaction modes and payment solutions that they will soon evolve. But sudden appreciation also suggested rampant speculation, setting off alarm bells in some quarters. Bitcoin is also notoriously dear to sundry criminals on the Net, who value it for the ability to complete transactions without leaving a trail in the banking system.

Paper currencies, too, are used to fund illegal activities, but no central bank would dream of suspending trading in dollars or euros. The answer to the Bitcoin scare is multilaterally acceptable regulation which interfaces digital currencies with the global banking system. Bitcoin is booming because speculators know that its time has come, that digital-only transactions will be routine in the near future. As a committed investor in information technology, India should embrace that future and work towards developing a multilateral legal framework to support such currencies.

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