'Let evolution do its job for bitcoin'

Gov’t urged to seek ways to remove counterparty risk

By Kim Jae-kyoung

Seoul Financial Forum vice chairman James Rooney

Financial authorities should minimize any activities to regulate cryptocurrencies so they can evolve in favor of humans, according to James Rooney, vice chairman of the Seoul Financial Forum.

“I do not see there needs to be regulation of cryptocurrencies per se, but simply normal enforcement of prudent social regulations that should apply to any activity, like no cheating, respecting other people’s ownership of their own assets and the like,” Rooney said in an interview.

“So the intermediaries involved in this activity have to behave properly. The whole point is to eliminate counterparty risk and to reduce counterparty or third party involvement to the maximum degree possible.”

Rooney said the concept and mechanisms behind bitcoin and other cryptocurrencies are wonderful, citing their valuable function of making transactions between two parties, or between one party and his separate existences in several places.

“Shells, silver, gold, and various forms of cash have served this purpose for longer than man’s recorded history,” he said.

“But those instruments have long had many weaknesses, problems, regulatory issues, and conflicts of interest that could potentially be overcome by this new mechanism of money storage and transfer.”

Comparing bitcoin to the internet, he expects it will take quite some time for people to know what digital coins will be worth or whether they will be able to execute a clean, safe and low-cost transaction on a timely, predictable and perfectly reliable basis.

“So at the macro level I would say we are not there yet. But there should be as few barriers as possible placed in the way of human progress, just like back in the early days of the internet,” he said.

“Nobody knows yet how this is going to work out, so we have to stand back and let evolution do its job.”

In particular, Rooney, who is a professor of international finance at Sogang University, said banning cryptocurrency trading is not a solution at all.

“That will not make it go away but like almost everything else that gets banned it will just force it to go into hiding,” he said.

He stressed there should be a minimum of intervention as long as all the voluntary participants are clearly made aware of the risks they face and the real circumstances behind the scenes.

“Better to leave it in plain sight with a minimum of restrictions and regulations. It would be much healthier in both the short run and long run,” he said.

“You cannot stop people from doing foolish things, especially with their money and their health, but you should try to educate them properly.”

He said any attempts to excessively control virtual currencies and their transactions come from a lack of understanding.

“This mining or creation process is really rather obscure. I do not think any of us really understand how these currencies come to have a value,” he said.

Currency control distorts market

Rooney thinks there is a reason bitcoin in Korea has been trading at a value much higher than on global markets.

“It is a powerful illustration of how distorted the Korean market is because of foreign currency controls,” he said.

He explains in the U.K., the U.S., Hong Kong and all across Europe, citizens are free to move their money across borders and across currencies with essentially no effort, while in Korea, essentially nobody is free to do that and every transaction is carefully reported and scrutinized.

“This fundamental market distortion in a large and otherwise well-developed economy means any avenue that has greater freedom than the tightly constrained regular channels can be expected to attract a premium for money outflows,” he said.

“And there is little reason for money to flow in the opposite direction through the same channels, so you get lopsided pricing.”

He also pointed out gambling and speculation are largely prohibited in Korea, so anywhere that provides an outlet for these commonplace human behaviors can be expected to become inflated with participants and disconnected pricing.

“Trying to regulate ordinary human behavior is generally a pursuit of futility. Rather than constraining it, it is generally better to just make sure it operates in an open, honest and properly functioning environment,” he said.