This is linked from here:
http://cryptonomics.io/news/are-we-really-surprised-that-russia-is-trying-to-ban-bitcoins/The other day I was doing my usual daily routine of scanning through the news when I stumbled across an article I neglected to pay much attention to.
The article in question? It was a report discussing Russia’s move towards outlawing the infant currency bitcoin. I glanced over the article and swiftly moved on, after all this was in the period where Mt.Gox had just announcing its suspension of bitcoin withdrawals and the USA had just confirmed it had arrested two men over alleged money laundering charges involving bitcoin.
Fast forward to today then and I found myself once again glancing over the same reports, but this time I was looking at them from a new angle. Now before I discuss and hopefully shed some light on this turn of events, let us examine what exactly has been going on.
What has been going on?Firstly let us get one thing clear, no reports that I have seen suggest that Russia has just fully outlawed bitcoin. Even the FT’s article surrounding the case is titled ‘Russia prepares crackdown on Bitcoins’, not ‘Russia has banned bitcoins’ and the FT (Financial Times) is probably one of the most well informed organisations on financial news.
So what has happened? According to Reuters Russian Prosecutor General’s Office said on February the 6th that:
“Systems for anonymous payments and cyber currencies that have gained considerable circulation – including the most well-known, Bitcoin – are money substitutes and cannot be used by individuals or legal entities”.
Russian officials have suggested that individuals or legal entities who use bitcoin could be deemed as ‘potentially suspicious’ under the countries current regulatory structure. The current regulatory structure they are colourfully referring to is the introduction of monetary units other than the rouble, as this is prohibited in Russia. I will hastily add at this point, that this is also illegal in most of the world’s 195 sovereign states.
At first glance it may seem like this is a classic case of a misunderstanding of bitcoins place inside of the system but today I am going to argue there is other motives behind this move. Before I begin though let us have a closer look at the world’s largest country – Russia.
Russia – the land of the free?Russia fell apart in 1989. The once great Soviet Union dismembered which left Russia in shambles. As often is the way in times of austerity a few benefited whilst the rest of the country fell apart. The people who directly benefited from The USSR failing were those who ended up in possession of the country’s largest corporations, namely its oil industry. These people today we refer to endearingly as oligarchs and a state ran by oligarchs is referred to as a plutocracy. Plutocracies are tyrannical by nature.
This plutocracy was building in the 90s but was practically made official in 2001, when Vladimir Putin become prime minister. Today you won’t find many serious analysts who claim that Russia is not tyrannical. Free speech is limited, opportunities are scarce and the country’s wealth is divided between very small numbers of individuals. In other words, pull away its curtain of so called democracy and what you will real find is a nation that is on par with dictatorship and it is ran with an iron fist.
FinancialsLet us explore Russia a little further and see how it is doing globally. Today Russia is struggling. Its national currency, the Ruble, has depreciated in value by 20% in just one year in comparison to its neighbour currency the Euro. Russia’s is also experiencing weak growth. In 2013 its economic growth fell to a meagre 1.3%, significantly lower than the 3.6% predicted at the start of the year.
To make matters worse inflation really took off in 2013, with Russia experiencing an average rate of inflation of 6.77%, up from 5.06% in 2012. This coupled with its depreciating Ruble and a general lack of investment security has ‘set off capital flight from the country long before it began to hit other emerging economies’ – according to
www.dw.de. Capital flight is exactly what I think the Russian hierarchy are afraid of, and could possibly be the reason towards Russia’s recently taking a dislike to the ‘digital currency’.
In relation to bitcoinWhat does all this mean for our little friend bitcoin? As we all know bitcoin is a very good transmitter of wealth which is hard for the existing system to keep control other. In other words bitcoin is currently the world’s most powerful capital flight tool. Name me one other application that allows you to walk over a boarder with wealth stored on your mobile phone, which can be easily exchanged for your destinations local currency – without having to go through an intermediate. There is nothing that compares to bitcoin for this purpose.
This is exactly what I am proposing Russia is worried about in relation to the cryptocurrency, people using bitcoin as a tool to help in capital flight. It is worth noting here that the only other countries who have made moves towards outlawing the cryptocurrency are China and India. The former already has very stringent rules in place to prevent capital flight and India is having its own domestic problems.
ConclusionsSo there you have it, in short I think Russia is making moves to help prevent capital flight in order to protect itself from the nation’s citizens and wealth going elsewhere. Should we be surprised? Not at all. This is Russia, a place where freedom of speech is suppressed and freedom of movement is limited. These are just the kind of measures we should expect from a country the rules with an iron fist.
I will say though in fairness to Russia, that in these economically turbulent times we are seeing more and more countries protecting their sovereignty in similar measures, and even banks are beginning to follow suit.
Will more countries follow the ‘Russian path’? Maybe. I think what is more likely is regulation building around bitcoin, which seems to be the path that most western nations are going down. I also personally think this is the best option, for both state and citizen. By making bitcoins illegal they are only going to make matters worse. Look for example at the peer to peer revolution of the early 2000’s. Government’s attempts to suppress the sharing of copyrighted material just helped make P2P grow into the almost unstoppable force it is today. History is always the best way to gauge the present.
