India is discussing norms to curb, spy on and control cryptocurrencies such as bitcoin. In November 2016, the government of Prime Minister Narendra Modi demonetized 86 percent of the cash in circulation in its country under the guise of fighting the gray economy. Clearly, though, it was a move to assert more control over citizens.
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The problems of India’s banking system are enormous. It is inefficient, people do not trust it and customers cannot even access banking services in some areas. As a result, the use of cryptocurrencies, including bitcoin, which is handy for the international transfer of smaller sums, has surged.
And now, New Delhi is considering the introduction of a special tax on cryptocurrencies. With its demonetization of cash and discrimination against cryptocurrencies, India is spearheading a global crusade against the freedom to use one’s own funds as one sees fit. This crusade violates citizens’ privacy and tosses aside the principle of presumed innocence – the main pillar of any rule-of-law system – substituting for it an all-encompassing suspicion.
Since 9/11, attempts have been made, at first probably naively, to stop terrorism by starving it of funds through increased control of the global financial systems. Complex, inefficient transaction-verification mechanisms and very costly compliance systems have been implemented, ignoring the fact that terror organizations do not need so much money to operate.
Distrust between governments and the people, a global phenomenon, spurs the wish of further control
Transaction and compliance control systems may be necessary, but they have become oversized. And oddly, they are constantly being beefed up by governments, in spite of growing evidence that the approach does little to prevent terrorist and criminal acts, since the perpetrators use other venues to finance their activities.
Taxes are necessary to allow the state to function. A point of unity among governments is fighting tax evasion, which apparently is considered a global issue. It is the distrust between governments and the people, a global phenomenon, which spurs the wish of further control, independently of whether the system is autocratic or democratic. These controls are the only effective action that organizations such as the G20 constantly agree on.
The distrust has created an army of additional controlling institutions and businesses, which are a burden on business efficiency. Some international organizations also see this as an opportunity to boost their influence. In the end, the distrust increases unnecessary financial overheads for the economy. But worst of all, it limits personal freedom.
If one feels that tax evasion is widespread, one has to look for its reasons. Even worse than the compliance requirements for the financial industry, the tax systems are overcomplicated, illogical and difficult to apply. Instead of simplifying the system, more and more controls are imposed. These measures degrade the important function of taxes –financing the services of the state. They also impair planning and controlling on the side of companies, and sometimes come close to harassment.
Nearly all businesses and citizens are honest and strive to be compliant. The tax systems, so overcomplicated, make compliance difficult and costly. The present trend to disallow benefits from using tax competition puts another heavy layer of bureaucracy on the shoulders of international business.
There is clear evidence that in the places where the tax burden is linked in a fair way to the services rendered by the government and where tax codes are transparent, tax evasion is a minor problem. In many other places, however, the compliance systems get more complicated by the day and control organizations mushroom. They bring no added value to the economy, only generate costs.
The easiest solution would be to simplify the entire system. It would also restore a degree of public trust in the government. However, a handy tool for milking the population would be taken away.
The deep cause of the taxation mania is the irresponsible budgetary practices in most countries. Remedies to the holes in state budgets are supposed to be central banks’ policies of low to negative interest rates and purchases of sovereign debt. The United States Federal Reserve and the European Central Bank have been doing this for a long while, oblivious to the fact that excessive issuance of money erodes trust in the currencies. The signals of change, which come lately from the Fed and ECB, are not very credible. In the case of the ECB, it may also be too little too late.
Logically, people look for alternatives for their savings. This, too, explains the attractiveness of cryptocurrencies. It might be true that these currencies are not mature, not yet tested and not safe enough. The stream of negative comments about them, however, so steadily coming from the media and governments seems to reflect not so much a concern for stability as a fear of the loss of control.
Alternative currencies are described as unsecure, an El Dorado for money launderers. As with any system, misuse is possible, but probably not more than in the traditional systems. In the era of internet, illicit money disappears easily in traditional banking systems, but now it is mainly the cryptocurrencies that get the blame. This sounds like a crusade of the lowest kind. Few convincing facts are offered.
Cryptocurrencies use a “blockchain” system, a public ledger with at least three key facts recorded in an unalterable way: the identifying address, the transactions’ history (the sellers and purchasers) and the private key header log, in which a sophisticated digital signature is captured.
The governing practice of Prime Minister Modi and his party in India is becoming increasingly authoritarian. It is no wonder that India, which already has harshly restricted the use of cash, is now leading the crusade against the cryptocurrencies.
The Indian example might be followed by others. The final goal here may be a fully controlled citizen: subject to a complete, malign transparency, obliged to limit his or her transactions to government-controlled currencies and instruments. At the end of this road is the socialization of all property.