Such a step would sharply undercut today’s cryptocurrency prices by reducing liquidity. Of course, restrictions will be more effective the more countries apply them, but universal implementation is not required for significant local impact.
Can some version of a ban be implemented? As China has demonstrated, it is relatively easy to shutter the crypto exchanges that the vast majority of people use for trading digital currencies. It is more difficult to prevent “on-chain” transactions, as the underlying individuals are harder to identify. Ironically, an effective ban on twenty-first-century crypto might also require phasing out (or at least scaling back) the much older device of paper currency, because cash is by far the most convenient way for people to “on-ramp” funds into their digital wallets without being easily detected.
Just to be clear, I am not suggesting that all blockchain applications should be constrained. For example, regulated stablecoins, underpinned by a central-bank balance sheet, can still thrive, but there needs to be a straightforward legal mechanism for tracing a user’s identity if needed.
When, if ever, might stiffer cryptocurrency regulation actually happen? Absent a crisis, it could take many decades, especially with major crypto players pouring huge sums into lobbying, much as the financial sector did in the runup to the 2008 global financial crisis. But it probably won’t take nearly that long. Unfortunately, the crypto crisis is likely to come sooner rather than later.
Kenneth Rogoff, professor of economics and public policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. The co-author of "This Time is Different: Eight Centuries of Financial Folly," his new book, "The Curse of Cash," was released in August 2016.