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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is a journalist and author of ‘Everybody Loves Our Dollars’
The UK government’s decision last week to block cryptocurrency donations in politics is the right one. The restrictions that defend democracy from foreign interference were built in an analogue age. Regulators cannot currently confirm the origin or ownership of digital assets, making crypto donations an obvious vehicle for corruption.
Political crypto funding may not be widespread in the UK yet, but its threat to democracy is not theoretical. Moldovan officials have detailed a Russian assault on the country’s electoral process via crypto, and Romanian intelligence reports claim that the involvement of cryptocurrencies helped to undermine democracy so thoroughly that a whole election had to be cancelled. The UK government is wise to get ahead of this potential problem.
But it could do more. Its intention, in the Representation of the People Bill, is merely to impose a moratorium on cryptocurrency donations “until the Electoral Commission and this Parliament are satisfied that there is sufficient regulation in place”.
A more categorical ban would be better, not just because it would be harder to undo but because of the message it would send. The immediate effect would be the same but the boldness of a total ban would be a welcome example of a liberal democracy standing up for its principles.
The image in popular culture of cryptocurrency is still rooted in the early days of bitcoin, which was proposed in 2008 when digital assets were anarchic, decentralised and revolutionary. Digital money on the blockchain was a strike back against a financial system that had partied hard and then left taxpayers with the bill.
But that was nearly two decades ago. The modern reality of crypto could not be more different. Bitcoin is used for speculation and ownership is dominated by corporations and billionaires, with trading infrastructure every bit as centralised as traditional finance.
The real action, however, lies in stablecoins: cryptocurrencies with value pegged to a real-life asset but traded via the blockchain, and thus outside the anti-money laundering checks of big banks.
The largest non-dollar stablecoin — the rouble-denominated A7A5 — was launched by a fugitive Moldovan oligarch and a Russian defence sector bank, and is designed to facilitate cross-border payments in spite of western sanctions on Russia. The Centre for Information Resilience claims that it is linked to Moscow’s attempts to use cryptocurrencies to fund foreign political influence campaigns.
There is nothing to stop other geopolitical adversaries of the west from doing the same. And there are thousands of exchanges, many of them far outside the reach of western regulators. This means cryptocurrencies can be exchanged for each other, leaving their ownership hidden and their provenance unknown.
It is hard to imagine Britain’s overstretched law enforcement agencies and regulators ever becoming potent enough to police political donations coming from this diverse, ever-shifting ecosystem.
A sovereign democracy has to be able to set its own rules, and there is nothing more foundational for its health than how it is funded. Except for in the special circumstances of Northern Ireland, non-British companies cannot fund UK politicians because they are not answerable to British laws. The same logic applies to cryptocurrencies. Allowing their use in political funding would not — as Nigel Farage claimed — extend democracy, but reduce it.
Financial innovation can be good. Perhaps cryptocurrencies will find use cases beyond fraud, money laundering and speculation. But privatised money will always be ultimately controlled by its owners. We should never want our political system to be answerable to anyone but us.
