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Thursday, March 23, 2023

cryptocurrency: Not just cryptocurrency, all money is funny money based on notional worth

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The old chestnut that nothing is more inevitable than death and taxes has got a makeover thanks to Nirmala Sitharaman’s provision in her Finance Bill that seeks to impose a tax on cryptocurrency transactions. Which implies that taxation may be even more ineluctable than demise.

An individual cannot be deemed to be dead unless the person is first officially accorded the fact of existence. However, the FM has devised a way of putting an impost on an asset that has yet to be legally recognised in the country, thus suggesting that taxation is even more inescapable than extinction, thus adding a cryptic twist in the tale of not only cryptocurrencies but of all currency, not excluding the digital rupee, which has made its debut in Budget 2022.

Since the invention of the bitcoin in 2008, cryptos have mushroomed. According to one estimate, there are some 8,000 of them in cyberspace circulation. Last year, El Salvador became the first country to officially recognise the bitcoin as legal tender, a move looked at askance by countries such as China which has banned the use of cryptos. In India, while the Supreme Court has upheld their legality, cryptos are in a state of limbo, awaiting Parliament’s decision regarding their status.

The current spotlight on cryptos may, however, seem misplaced as all currencies, at all times, are crypto, in that as mediums of exchange, they are based on a mutually agreed upon conspiracy regarding their intrinsic worth. This has been the case ever since world currencies went off the so-called gold standard, starting with Britain in 1931, followed by the US in 1933, following a decision taken by Franklin Roosevelt to print more dollars to fund his New Deal to overcome the doldrums of the Great Depression. Prior to that, currencies were backed by the reserves of gold that individual nations held in store, and paper money was a promissory note that could be exchanged for bullion.

Without the underpinning of gold, all currencies became like the ersatz money used in the board game of Monopoly which, invented in 1904, reached the height of its popularity during the Depression years when the mirage of wealth was replaced by the fantasy of fortune. However, even when money was backed by gold, its supposed value was a fabrication based on the mismatch between the demand and supply of the precious metal, which was precious because of its relative scarcity. If 24-carat gold could be cheaply produced in a laboratory, it would be worth no more than its look-alike, iron pyrite, otherwise known as fool’s gold.

To replace the cumbersome and inexact barter system of commercial transaction, human ingenuity has devised all manner of tokens of exchange. The legionnaires of the Roman Empire were paid part of their wages in salt, a prized food preservative called ‘sale’ in Latin from which is derived the word ‘salary’.

The Kharva fisherfolk of Kutch Mandvi, where my family originally came from, used to use cowrie shells as currency. This did not strike me as strange when as a child I visited our ancestral home, and it does not strike me as strange now. A cowrie shell is something tangible, and can be used as a decorative item, or a fashion accessory, or a paperweight, if large enough. But of what practical use is a piece of paper that declares that the signatory, a remote bureaucrat, promises to pay the bearer the sum of x number of rupees?

What is the sum of x rupees? Is it the same sum as it was 20 years ago? And will it be the same 20 years hence? All currencies, including fiat currencies, government-issue currencies, are based on a complicity of make-believe value. Perhaps that is one reason why cash has so many code-word synonyms: dough, bread, dosh, lolly, filthy lucre….

Money is a fungible, with the emphasis on the first syllable, fun — in that it’s based on notional worth. All money is funny money, or counterfeit by another name, and can be as hilarious as a barrel full of monkeys. And the biggest joke is that it can all be rendered totally worthless by a single stroke of overnight demonetisation.


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