As alleged, it had been actuated by a moral panic about currencies which are beyond its pale only because they are not fiat.

In 2018, the Reserve Bank of India prohibited banks from dealing with entities, including exchanges and individuals, using virtual currencies (VCs). These entities had protested that the move was arbitrary because the government did not have a cogent position, and unreasonable because it was actuated by moral concerns. Now, the Supreme Court has found that the RBI order failed the proportionality test. Neither had it tracked VCs in the wild, nor had it proved damage done to parties or institutions by their use. As alleged, it had been actuated by a moral panic about currencies which are beyond its pale only because they are not fiat.

It’s a familiar story, except the ban. Even the biggest cryptocurrency markets have suffered such panics. The US government has developed ulcers pondering the misuse of anonymity for criminal activities on the once glamorous but now derelict Dark Web. During a downturn, Beijing became irritable about Bitcoin being used to offshore value and hedge. Besides, the apparent anonymity of VC transactions raises regulatory concerns but in reality, the blockchain in which they are recorded is the most transparently true ledger imaginable. But always, as in India, the main concern has been that these currencies are non-fiat, are not within the purview of a central bank, and their volatility cannot be controlled by standard interventions. However, the stability of fiat currencies is not absolute either, because money is finally validated not by the signature of a central bank’s governor on banknotes, but by market consensus. An extreme example: Towards the end of World War II, markets agreed that the Deutsche Mark was worthless, and households used banknotes to paper over damaged walls and keep kitchen fires burning.

Now, essentially, the SC has found that no harm was suffered by the use of VCs. It has cracked open the door, but it has also found that both the RBI and the legislature have held conflicting positions on the subject. In fact, while putting cryptocurrencies on ice, the government had considered launching one of its own. More clarity on the part of the concerned parties would pave the way to legislation enabling meaningful regulation. And while they’re about it, could they please leave off trying to define VCs — as the court says, it is like the blind men trying to describe an elephant — and focus on implications for the profit and loss account of Digital India?