Publicly fretting about Bitcoin and other cryptocurrencies, last month, Treasury Secretary Steve Mnuchin assured an audience at the Economic Club of Washington that "one of the things we will be working very closely with the G-20 on is making sure that this doesn't become the Swiss numbered bank accounts." He specifically cited the difficulty cryptocurrencies pose to tracking transactions as a major concern.
Soon afterward, India's finance minister, Arun Jaitley, sounded an even stronger note, saying, "The government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system."
Why are government officials sounding such similar notes of hostility to increasingly popular non-state cryptocurrencies?
"The core technology underlying cryptocurrencies, known as blockchain, is premised on anonymity," Richard Holden, an economics professor at the University of New South Wales, and Anup Malani, a law professor at the University of Chicago, explain. "But anonymity is also the main fuel for the underground economy, which is now conducted largely via cash." They add, "If cryptocurrencies were to replace cash as the preferred anonymous medium of exchange, they could significantly expand the underground economy because they are so much more convenient than cash."
It's worth remembering that India's government hates cash, too. Less than two years ago, India demonetized all 500- and 1,000-notes—the highest denominations in circulation—turning them into worthless paper overnight. Officials happily plunged the economy into chaos, and forced many people to resort to barter, in an effort to force the private cash holdings powering the country's vast shadow economy into official view, subject to tracking and taxation.
"We can gradually move from a less-cash society to a cashless society," Prime Minister Narendra Modi said at the time, making his ultimate aims clear even as his policies disrupted the lives of people subject to his rule.
Lots of economic heavy-hitters agree with that sentiment, including Peter Bofinger, a member of the German Council of Economic Experts, who calls for "the abolition of cash, since coins and bills are obsolete and only reduce the influence of central banks." He insists that with the end of the anonymity provided by cash, "the markets for moonlighting and drugs could be dried up."
Harvard University's Kenneth S. Rogoff, former chief economist of the International Monetary Fund, puts a similar book-length argument forward in The Curse of Cash. "The big problem with paper currency is that a large part of it is used to facilitate tax evasion and a huge spectrum of criminal activities," he says. Concerns about constant scrutiny by Big Brother don't sway him either, leading him to retort, "the government's right to tax, regulate and enforce laws trumps individual privacy considerations."
Rogoff unsurprisingly also thinks cryptocurrencies are entirely too freewheeling, snarking that "bitcoin—it is a solution if you're wanting to launder money or tax evasion. I think the government will eventually have to regulate it severely and I think someday will issue its own digital currency." He adds, for emphasis, "it's the anonymity that's really the problem."
Even in the absence of a formal policy decision, those concerns are already seeping through into everyday life in the United States. In recent weeks financial institutions including JPMorgan Chase & Co., Bank of America Corp., and Citigroup Inc. have restricted the use of their credit cards to purchase cryptocurrencies at least partially over concerns about the government's ability to track their use. Banks are required by regulators to monitor their customers' transactions for anything the government might interpret as money laundering, notes Bloomberg, "which isn't as easy once dollars are converted into digital coins."
The assault on cryptocurrency is having some effect; Reuters reports that bitcoin "approached three-month lows on concerns about a global regulatory clampdown on the trading of the digital coins."
Since government objections to cryptocurrencies are essentially identical to those made against cash, the arguments in their favor are largely the same too.
"The rich have many ways of hiding assets and making them safe from states and from the taxman," author John Lanchester wrote in a New York Times Magazine column about the push to abolish cash. "Cash is one of the few ways in which ordinary citizens can enjoy a tiny taste of the freedom, privacy and security that the rich take as their due."
"Cash is printed freedom," is how Lars Feld, also of the German Council of Economic Experts, pithily rebutted his colleague Bofinger. And Feld was blunt that by "freedom," he meant escape from complete state scrutiny and control. His countrymen seem to agree.
"The main reason people give for preferring cash is anonymity compared to card payments," Helmut Hammes, head of the German Central Bank's cash department, remarked after the Bofinger-Feld public sparring match.
Well, if you're going to have a debate, the sides might as well be upfront about their motivations.
If advocates of expanded power are going to be so transparent about their motivations in opposing cryptocurrencies and cash, if they're going to be so explicit in their hostility to the anonymity and liberty those means of exchange offer people, we should take them at their word. Let's be clear in response that what they see as problems are the precise features we like about cash and cryptocurrencies. We support our well-worn folding money and bitcoin and its successors to come precisely because they put at least some of our activities beyond the reach of control freaks who want to monitor, tax, and regulate our lives.
Cryptocurrencies and cash are valuable not despite their anonymity, but because of it.