As the cryptocurrency revolution moves forward, governments, and their central banks, are scrambling to develop policies to manage and regulate the field. Although financial leaders are intrigued by the potential of blockchain technology, they have made no secret of their opposition to decentralized cryptocurrencies. Banking bans have emerged as their latest tool in an attempt to stem the flow of fiat currency into their digital alternatives.
The most publicized recent banking ban is by the Reserve Bank of India (RBI), which implemented a ban on all cryptocurrency related activity earlier this year. Other central banks have put similar bans in place, including those of Iran, Zimbabwe, Pakistan, and most notably China. In each case the financial authorities cite fraud protection as justification for the restrictions, but the actions are widely perceived as attempts to limit the public’s ability to transfer state-backed fiat into borderless cryptocurrencies.
For its part, the banking industry has voiced little objection to state initiated attempts to block its involvement in cryptocurrencies, yet banks are known to be deeply divided over the question of crypto adoption. Most major banks are openly hostile toward digital currencies, and refuse to offer their services such as loans and fiat conversion to crypto-focused companies. They are also increasingly blocking the use of their credit cards for purchases of cryptocurrencies. Smaller banks, however, have shown more willingness to work with the crypto community, and a few have become quite active in courting partnerships with cryptocurrency and blockchain startups.
Supporters of banking bans believe that such restrictions can successfully insulate their economies from the high volatility of the crypto markets. No doubt many of these individuals are sincerely concerned about the risks associated with cryptocurrencies. Nevertheless, politicians and financial leaders understand that blockchain assets pose an existential threat to their own fiat currencies, and it is thus no surprise that they are seeking to prevent the public from investing in them. Similarly, opposition from major banks rests on the simple fact that cryptocurrencies promise to render many of their most profitable services obsolete or even replace them completely.
Regardless of the motivation for their implementation, banking bans are proving to be ineffective, as they are easily sidestepped by cryptocurrency investors. More importantly, banking bans are bad public policy. Blockchain technology is all but certain to become a mainstay of a vast array of industries. Likewise, cryptocurrencies are well on their way to common use. For a nation to actively discourage its citizens from acquiring what promises to be the most valuable asset class of the twenty-first century is incredibly short-sighted.
These bans also demonstrate the complicated, and perhaps hypocritical, attitude of financial leaders toward digital currencies. Many anti-crypto central banks are believed to be developing their own digital currencies, including the Indian and Russian central banks, to name just two examples. Also, the very banks that publicly refuse to offer services to cryptocurrency companies are at the same time exploring the use of blockchains for their own internal processes.
Given that these bans are ineffective and unpopular, they are most likely just temporary. As blockchain development and cryptocurrency adoption increase, politicians and financial authorities will be forced to accept their permanence. For now, banking bans are proof that the crypto revolution is re-shaping extremely powerful elements of the global financial landscape. Cryptocurrencies are not merely additions to the global status quo, they promise to revolutionize it, changing the very means by which wealth and economic power are distributed.
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