Faisal Khan on why financial regulators need to accept the reality (and usefulness) of bitcoin for money transfer and remittances.

The Sumerian currency was the cradle of what we call money today. Back in those days, a couple of thousand years ago, the monetary units of the early days took various forms: shell rings, oil jars, bronze and silver rings, clay tablets, and so on. Presumably, this money was used (and accepted) perfectly well among the general population at the time. One could barter in any form or manner, it was just that exchanging goods for services and vice versa was a difficult calculation. Goods ‘A’ to Goods ‘B’ exchange was relatively easy to calculate, hence the marketplaces and exchanges that quoted barter prices daily. Goods-to-service was slightly trickier, again being dependent on supply and demand, but was also quoted on smaller, regional marketplaces.

It was the beginning of government-sanctioned money, yet private money still dominated. It wasn’t until the late 1600s and early 1700s that the adoption of government-issued money was the norm in all the countries of the world.

Take the German Rentenmark as an example. It was short-lived, but served a purpose for Germany during hyperinflation years. It was a brilliant solution by a banker called Hjalmar Schacht. In 1923, he was the currency commissioner for the Weimar Republic and was the chief architect behind the Rentenmark to control hyperinflation by basing the value of the Rentenmark not on gold (Germany didn’t have any left then), but on a mortgage on all of the properties in Germany.

Rentenmark (Front) — By Drrcs15 — Own work, CC BY-SA 4.0.

Rentenmark (Front) — By Drrcs15 — Own work, CC BY-SA 4.0.

The Rentenmark doesn’t exist any more. Neither does the Italian lira or the French franc or the East Indian rupee (regal issue). Looking back, it was on 9 December 1991 at a 400-year-old Chateau Neercanne that the idea behind the euro was conceived. 50 years prior, it was almost inconceivable to imagine a European Monetary Unit.

Remember how the world sprang to life to hoard Iraqi Dinar, rampant speculation of it going up in value post-Iraq-War? It never happened. That version of the Iraqi dinar died. The bottom line: we evolve. Governments evolve. Borders change. Trade evolves. Currencies come. Currencies go. This is the peculiar nature of borders and currencies – they are ever-evolving. Here is a semi-accurate list of all the circulating and non-circulating currencies of the world.

Learning bitcoin and the blockchain

In late 2012, when bitcoin started appearing in mainstream media, the attention it received was always steeped in skepticism; its links to the underground or dark web were often cited. In short, many believed it to be no more than toy money or money to be utilised by criminals. Nothing could be further from the truth. If one wants to focus on and highlight the criminal aspect of money only, there are countless examples of how the current fiat-issued money tops the list. Hands down, there is no competition to money and crime with fiat-issued money versus cryptocurrencies.

However, as time progressed, even literate people had a difficult time understanding how the entire bitcoin ecosystem worked. Many questions come to mind:

  • How is mining done?
  • Who the heck is Satoshi Nakamoto?
  • Who controls it?
  • What is consensus?
  • Why is it restricted to 21 million?
  • It is an elaborate scam – how can something suddenly come into this world and be declared money by everyone else?
  • Why does it take so long to confirm a transaction?
  • How does bitcoin stack up for issues such as privacy and fungibility?

All these are genuine questions, but I feel we are beating the pulp to death on version 1.0 of cryptocurrency. No one gets it right the first time. No one. Was the first browser the ultimate browser? Was the first email client the ultimate one? Was the first Federal Reserve the final one? (It was actually the third attempt at establishing a central bank in the US.) I could go on and on. In short, if you want to find excuses, you will. However, if you decide to take what is indeed revolutionary (and there are no doubts about that), bitcoins (and the blockchain) are fundamentally altering the way we think about money (and assets) like never before.

Central bankers are more reserved than you would like to believe. Having interacted with them, lots of them, I can tell you first-hand, they are not the brightest of the lot. Neither are bankers. All this “bitcoin and cryptocurrency stuff” is very new to them. What they (the bankers and regulators) need is education. Unfortunately, they are left alone to defend themselves in this regard. Their education starts and stops at what Time or The Economist may have covered. Collectively, they hardly constitute a calendar under which they will attempt to learn deeply about cryptocurrencies. Somewhere along the hierarchical ladder sits a person who is the trusted guardian of fiat, and views cryptocurrencies as cockamamie ideas and thinking.

How dare they challenge the established banking norms and principles of the money issuance!

It is exactly these kinds of bankers that are the proverbial sabots in the machinery, hence sabotaging the entire experience for others. Just as in the blockchain world, in the present-day banking world, we need to build a consensus and not debase the importance of bitcoin, cryptocurrency and the blockchain.

The only tool we have to overcome this obstacle is continual education and awareness programmes, not just for bankers and regulators, but for all facets of society who view money as a core necessity as part of their progress and well-being. Think about it, we work all our lives for money (among other things) and yet it’s a subject about which society has very little knowledge. The only way cryptocurrencies will make it mainstream is if the public can see the benefits of what it can do and how it can advance our society on the whole.

Bitcoin and regulators

A large swathe of financial regulators worldwide haven’t issued an opinion on bitcoin and cryptocurrencies in general (i.e., the use of bitcoin and cryptocurrencies is still undefined). There are four possible reasons for doing so:

  • Financial regulators are adopting a wait-and-see approach. Is it a fad or fact? Perhaps the whole cryptocurrency movement will cease to exist, or perhaps mature quickly to be adopted into the mainstream monetary system.
  • They are studying it and will not be pressured into giving an opinion on it yet. Instead, they’re monitoring its growth and usage worldwide, its dominance in their respective markets, and the legal framework surrounding it.
  • They would like to classify it as illegal, but then again if all the other central banks adopt it, they will end up looking like fools.
  • They would like to legalise it, but then again if major central banks deem it illegal, they will look silly.

Control over fiat issuance

Bitcoins or cryptocurrencies don’t interfere with the mechanisms of fiat issuance of any particular country. There is no indicator or published report that would cite the same. While proponents and libertarians would like you to believe otherwise, these cryptocurrencies are in no way designed (at present) to disrupt the local currency issue or to become some method of lender of the last resort. In my opinion, the coins are too few and too far spread out for that to happen.


Contrary to popular belief, bitcoin transactions as performed by bona fide money transfer companies do not in any way circumvent the KYC or AML attributes. These are very much monitored. What central banks need to become comfortable with is that just because an exchange is a bitcoin-related entity, it doesn’t necessarily imply they’re not willing to adhere to the compliance frameworks of the geographic territories they’re operating out of.

Most bitcoin exchanges I’ve worked with have a very decent compliance programme. Most are continuously upgrading their KYC requirements (i.e., making controls stricter to ensure that no abuse on transactions takes place on their exchanges). Almost every exchange today employs a logging mechanism for purposes of LEAs (law enforcement authorities) to tap into (if required) and obtain the necessary trace lines on the transactions being conducted.

Why bitcoin should be allowed

Predominantly, because it’s a great mechanism for value transfer on the internet. Even though there are thousands of local and global payment systems, none of them have true international coverage. They are either restricted to a few geographies or have limited scope in payments. Bitcoin is like email: it’s non-discriminatory. Anyone can have access to it and exchange it with anyone else, without the double-spend.

Regulators have to accept that as the world progresses forward, newer (and more efficient) payment methods will come into being. In the 1920s and 1930s, gold was a sought-after commodity when currencies started to collapse. It could very well have been pigeons or wood, except that gold had some fundamental properties that boded well for it to be considered an asset to value currencies and wealth for hundreds of years. Gold is the go-to metal in the physical world; atom-based. In the digital world, what’s the equivalent of gold? Electrons-based – what is it?

Bitcoin certainly qualifies for that. From the most least-developed nation to the most developed nation, bitcoins and associated value can be traded with ease. No borders. No inflation. No government control.

Foreign exchange reserves

When bitcoin transfers are done across borders, the settlements of funds are usually utilising domestic money – i.e., there is no net transfer of fiat from country ‘A’ to country ‘B’. There is enough bitcoin exchange liquidity on both sides of the border to ensure a smooth transfer without the need to sell the bitcoins on an international exchange for funds management. Central banks object to this as it robs them of the much needed foreign exchange, which in most cases never comes through. To understand this concept more, read this article.

Registered bitcoin exchanges can be offered the exemption to sell bitcoins on international exchanges and remit the money back into the country. Such inward transactions should be treated as remittances rather than commercial transactions. It’s the only method by which central banks will be able to retain their foreign exchange reserves accrued from remittances.

Why it makes sense to adopt

One adopts to adapt to the time we’re living in. Today, have no doubt, we are an electronic (information-based) society. It makes sense to also have a monetary unit that’s reflective of the same. We need not be stubborn about it. In fact, why be stubborn about it at all?

If there is something that’s truly revolutionary, and pundits from all over the world agree, the bitcoin (and the blockchain) are pretty darn revolutionary. Why not welcome it with open arms and embrace it? The fundamental attribute of any technology can be traced back to the triangle of choice. You can choose any two elements here and the third one will go against you.

Triangle of choice

Bitcoin (and the blockchain) are able to defeat the triangle of choice. You can have higher quality (read: global coverage, equal access to all), higher speed of transfer and a lower price per transaction with bitcoin over traditional fiat money (be it physical or digital).

Years from now, historians will no doubt point to the paper published by someone called Satoshi Nakamoto as the starting point for a new era of money, and history will judge how central banks and the financial institutions it regulates reacted to the opportunity that presented itself in the shape of bitcoin and the blockchain.

In closing, the very fact that when something is disruptive in nature, it usually implies that all the norms have been shattered. Society needs to rethink and reevaluate in light of what has transpired. We need to rethink our money.

READ NEXT: The case for bitcoin (or something like it)

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Main image: Willyam Bradberry, Shutterstock.com

About the author

Faisal Khan

Faisal Khan specialises in cross-border money transfer and payment systems as a payments consultant and evangelist for digital money. He is a regular contributor to the Around the Coin podcast.

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