On Jan. 10, Treasury and Finance Minister Mehmet Şimşek announced that Türkiye is progressing toward finalizing cryptocurrency regulations. These regulations and a supervisory mechanism aim to align Türkiye with the consolidated European Union regulations in force since May 31, specifically the Markets in Crypto-Assets Regulation (MiCAR).
Türkiye’s customs union with the EU and its substantial economic ties with EU countries incentivize the adoption of EU regulations for smoother trade and economic relations. This alignment extends to environmental concerns, including adherence to the EU Green Deal to avoid trade disruption due to the EU’s Carbon Border Adjustment Mechanism (CBAM). Thus, Türkiye’s pursuit of compatibility with the European Economic Area encompasses diverse areas such as trade, finance and quality standards.
Nevertheless, the discussion around cryptocurrency regulations goes beyond alignment with EU standards; it involves national security and the prevention of money laundering by criminal groups.
Money has long been a symbol of national sovereignty globally, and understanding this essential sovereignty issue is crucial before opposing regulations on national or international levels.
The Islamic understanding of sovereign power during the Ottoman Empire and earlier also saw the power over coinage as a symbol of the sovereign ruler over money used in the realm. Since the invention of coins as currency, the value of the coins (unless gold or silver) often rests on the value secured by the sovereign power which issues those coins and currencies. Opponents of crypto regulations must understand this essential sovereignty issue before objecting to regulations at national or international levels.
Global efforts to regulate cryptocurrencies
Many G-20 governments, regardless of their differences, tend to agree on the need to regulate cryptocurrencies, coin markets, and other digital assets. Similar to the International Monetary Fund’s (IMF) mandate on safeguarding the international financial system, national central banks and governments also have mandates to safeguard national economies and the assets of their citizens and firms in the face of highly volatile and speculative cryptocurrencies. The level of bans or willingness to regulate may have different approaches from country to country or region to region. On a global scale, the IMF is trying to consolidate some form of international standard. Other than the EU nations, the United States, China and India are trying to impose some cryptocurrency regulations. Some governments went as far as to ban them. In the case of China, even the trade of coin “mining” equipment has been banned.
The IMF and other international financial institutions have also been advocating for regulating cryptocurrencies, and their high volatility is a concern. As central banks have the mission of ensuring stable currencies and fighting inflation, extreme speculation and volatility further complicate that mission. There are even environmental concerns since the crypto-mining activities consume a lot of electricity and may put too much weight on the electric grids, which local and national governments have the authority to ensure citizens’ access to basic utilities such as electricity and water. According to the International Energy Agency’s Electricity Market Report 2023, the increase in electric vehicles (EV) would likely cause additional pressure on the grid. The other EV electricity consumption would also be accompanied by rising data centers that would be processing artificial intelligence as well as cryptocurrency mining activities. Therefore, regulation of these activities consuming electricity is also necessary due to the rising number of EVs on the roads, including in Türkiye.
The digitalization of the economy and financial systems is anticipated to persist, with ongoing efforts by the IMF and various central banks exploring the development of central bank-issued digital currencies. Both international organizations and national governments are actively adapting to blockchain technology and digital currencies. Simultaneously, there is a growing governmental focus on addressing the regulation of capital transfers, as many cryptocurrencies enable unregulated cross-border transactions, posing significant security concerns related to money laundering, criminal financing, and terrorist activities. This regulatory scrutiny is essential for national security and the combating of internationally operating organized crime.
Cryptocurrencies as swift alternative amid uncertainties
Cryptocurrencies, often employed to circumvent economic sanctions, offer a faster alternative to transfer funds compared to traditional methods involving gold, particularly in times of war and political uncertainty. While cryptocurrencies, like gold and silver, tend to gain value in uncertain geopolitical situations, predicting which coin will appreciate or depreciate remains challenging. Moreover, safeguarding citizens against scams, uncertainties and speculations in the highly volatile cryptocurrency market is a pressing concern, given the potential risks for investors unaware of the factors influencing the value of these digital assets.
Cryptocurrency proponents may overlook the fact that cryptocurrencies pose not only security and economic stability concerns but also a direct challenge to the government’s monopoly as the sovereign authority issuing currency. Governments seek to regulate crypto-assets not solely due to worries about issues such as money laundering, criminal transactions, and tax evasion but also because the national currency symbolizes the government’s sovereign power, as previously discussed in my article published in the International Crimes and History Journal in 2022.
Throughout history, the face of a sovereign ruler on minted coins and currency has served as a significant symbol of sovereign power. In early societies, sovereignty was often conveyed through coins, such as those in the Ancient Roman Empire, featuring the engraving of the ruler’s face. In medieval Europe, mining rights and the minting of metals into coins required authorization from the sovereign authority of the state. In Türkiye, coins and paper currency prominently display the republic’s founder, Mustafa Kemal Atatürk, alongside images of nationally significant figures, places, or moments.
In the contemporary world, national currencies play a crucial role as symbols of national sovereignty within the modern state system. Following the post-World War II Bretton-Woods system, which was initially gold-based, the devaluation of the U.S. dollar and the abandonment of the gold standard in the early 1970s led to national currency values being influenced by investor confidence in the economy, national governments and central bank policies. The communication of effective fiscal and monetary policies by state authorities instills reliability and trust in the amount of currency circulating in the economy.
Money, invented over 3,000 years ago by the Lydians in ancient Anatolia as a medium of exchange, evolved beyond barter by incorporating various currencies, instilling trust in the issuing sovereign power. National governments have since maintained a keen interest in retaining a monopoly over the circulation of valid currency in their economies. Systems like the euro in the eurozone or the gold standard in the Bretton Woods system were willingly embraced by governments, differing significantly from cryptocurrencies and digital assets of unknown origins, privately issued and “mined.”
The value of cryptocurrencies, often based on speculative supply and demand, raises crucial questions about their underlying worth and potential counterfeiting. Addressing these uncertainties, antitrust regulations need to safeguard against cryptocurrency speculation and ascertain the number of holders of these crypto assets. In both global and Turkish crypto markets, numerous citizens faced losses, revealing the risks of an unregulated financial system. This underscores the government’s responsibility for the safety, physical and financial well-being, and security of its citizens and households.
Economic disparities, diminishing trust
In contrast, it is essential to recall economic crises where banks and major corporations receive bailouts while millions of citizens grapple with economic hardships. Trust in certain financial institutions and banks, including in Türkiye, is diminishing today due to the actions of avaricious investors and alleged “special funds” managed by corrupt bank executives. The loss of millions of dollars in investments due to the actions of specific bank officials further erodes trust in these financial institutions. This distrust has, in part, contributed to a scenario where citizens seek alternative forms of investments. The rapid success stories of certain crypto-assets, particularly appealing to younger investors within the IT community, startups and young entrepreneurs, cannot be ignored. Financial institutions, particularly in Türkiye, need to exert more effort to regain the trust of citizens. Memories of substantial profits at the expense of customers when obtaining low interest rates are still vivid. The erosion of confidence in the financial system has promoted the emergence of alternative systems like cryptocurrencies and coin markets. Consequently, regulations on crypto-assets should be accompanied by sustained sound economic policies.
G-20 countries, including some exceptions, emphasize security and safety concerns such as money laundering and citizen protection in their regulation of cryptocurrencies. Unregulated money transfers not only pose risks of tax evasion but also fund criminal and terrorist activities. Governments are responsible for safeguarding citizens against counterfeiting, fraud, pyramid schemes and other threats to their investments. State revenues, primarily derived from taxation, fund critical infrastructure investments like airports, roads, hospitals, education and national security.
While specific details are under development, regulating cryptocurrencies and coin markets is expected to include comprehensive mechanisms, especially those addressing anti-money laundering (AML). The distribution of responsibilities among institutions, such as the Capital Markets Regulatory Body (SPK), Banking and Financial Sector Regulator (BDDK), and even the Energy Markets Regulatory Authority (EPDK) due to high electricity consumption, remains to be seen. Other entities, including the Competition Authority (RK) and relevant ministries, may also play roles in regulating cryptocurrencies.
Türkiye’s approach aims not to ban but to regulate cryptocurrencies. Regulation is essential for citizen safety, preventing investments from evaporating in volatile crypto markets. It serves as a matter of national security, protecting the state from criminal activities funded through money laundering. Additionally, regulation is crucial for national sovereignty, channeling taxed revenues into public infrastructure and utilities such as schools, roads, hospitals and national defense.