Banning cryptocurrencies: A hurdle in the way of digitalisation?
From small barter societies to the world-wide acceptability of fiat money (mainly paper money or coin), the evolution of payment methodologies throughout human history has not been anything short of astonishing. One of the newest members of this evolution is bitcoin, which has been defined as an "online communication protocol that facilitates the use of virtual currency, including electronic payments."
The Financial Action Task Force (FATF), an independent inter-governmental body as well as a global money laundering and terrorist financing watchdog, defined virtual currency as "a digital representation of value that can be digitally traded and functions as a medium of exchange, and/or a unit of account, and/or a store of value but does not have the status of legal tender." Therefore, virtual currencies may be considered as a private mode of exchange. However, it does not reflect a sovereign guarantee of the value or legal tender status in any manner whatsoever. Virtual currency is distinguished from fiat currency and also distinct from e-money, which is a digital representation of fiat currency used to electronically transfer value denominated in fiat currency.
In the era of digitalisation, a majority of the countries are allowing transactions through virtual currencies. However, not all governments are laying down a bed of roses for the use of virtual currencies (such as bitcoin) in their jurisdictions. In Bangladesh, virtual currencies neither have the status of legal tender nor does it fall within the ambit of the definition of "currency" or "coin" as defined under the Foreign Exchange Regulations Act, 1947 (the "Act of 1947") and the Bangladesh Bank Order, 1972. Interestingly enough, Section 2(b)(ii) of the Act of 1947 kept its door open for introducing new currencies by empowering Bangladesh Bank to declare some physical or non-physical instruments as currency. This means that the Bangladesh Bank has the power to treat the virtual currency as a legal currency by publishing a notification under the provisions of the Act of 1947.
However, instead of declaring the virtual currency as a legal currency, Bangladesh Bank has prohibited the dealing of virtual currencies or cryptocurrencies (such as Bitcoin, Ethereum, Ripple, Litecoin) by two cautionary notices issued in 2014 and 2017. Collectively, these two cautionary notices connoted that transactions of virtual currencies are not supported by the Act of 1947, the Money Laundering Prevention Act, 2012, or the Anti-Terrorism Act, 2009 and banks are to refrain from making such transactions. In 2019, in a circular directing banks to take safeguards against illegitimate online payment through international cards, Bangladesh Bank termed the purchase of cryptocurrencies as an illegitimate online payment.
Until recently, a similar sort of prohibition was enforced in India by its central bank, the Reserve Bank of India (RBI). In 2018, RBI banned cryptocurrencies stating, inter alia, all entities regulated by RBI are not to deal in virtual currencies including bitcoin or cryptocurrencies. However, in a historic judgment passed on March 4, 2020, the Supreme Court of India has lifted the ban on cryptocurrencies transaction in India. In the case of Internet And Mobile Association vs. RBI, India's Apex Court held, amongst other issues, that the RBI had failed to provide enough empirical data to demonstrate that virtual currencies had any adverse impact on the traditional economy and found a total ban on trading in virtual currencies to be disproportionate and excessive. Resultantly, the ban of RBI has been quashed and India has added one more badge on its shoulder of digitalisation and globalisation.
The trend in globalisation is adopting major changes smoothly. Dawdling in this aspect may result in a major setback for a country in the very competitive global market. It is a widely popular notion of jurisprudence that law ought to be dictated by reason, morality and conscience, and changes in laws should be justified on two grounds—reason and the will of the people regulated by the laws. Changing laws on the ground of reasonableness makes the legal system just and effective. One does not have to look very far to find reasonableness behind allowing the transaction of cryptocurrency.
It has been reported that the Minister of State for Information and Communication Technology (ICT) said in an event that the time has come to think about cryptocurrencies like bitcoin and other virtual currencies, and he will request Bangladesh Bank to think about virtual payment systems. It was also reported that currently around BDT 10,000 crore is spent annually for shopping online and he expects the BDT 20,000 crore mark to be crossed by 2025.
With the vision of digitalising the country, the government is investing a lot of money and effort into the ICT sector. A remarkable growth in the number of freelancers working in the ICT sector from Bangladesh has been witnessed in recent years. Experts are seeing this as a way of diversifying the modes of bringing in foreign currency into Bangladesh. Since these earnings are in millions, soon foreign investments may be seen in this sector.
Virtual currencies such as bitcoin can very soon become the principal mode of transaction in disbursing remuneration of online labour. In such a situation, if virtual currency transactions are prohibited in Bangladesh, the freelancers may fall behind in acquiring their online earnings. Also, in the era of globalisation, virtual currencies can become a great means of liberalising the economy and display the government's role as a facilitator, which helps to create an enabling environment for foreign investment in Bangladesh. The consequence of this will be an increase of confidence on the part of foreign investors regarding the ease of doing business in Bangladesh.
Md Khademul Islam Choyon and Nafiz Ahmed are an Advocate and apprentice lawyer, respectively.