The way the government is handling the cryptocurrency mania shows that policymakers in the country are not prepared to catch up with -- let alone plot a course in -- the fast-changing digital economy. Last week’s flip-flop over the proposal to shut down cybercurrency exchanges was a case in point.
The one-day commotion started with a bombshell announcement by Justice Minister Park Sang-ki that his ministry would seek legislation to shut down all the virtual currency exchanges in the country.
It would have been strange if the announcement had not battered the already highly volatile market. The prices of major virtual currencies such as bitcoin plunged by about 25 percent, as panicky investors dumped them.
The announcement angered investors -- their number in the country is now estimated at 3 million -- and hordes of them rushed to the website of the presidential office of Cheong Wa Dae, which has become a popular place for public petitions since President Moon Jae-in took office.
As the number of online petitioners rapidly grew, an embarrassed Cheong Wa Dae spokesman reversed Park’s announcement. The spokesman said shutting down the exchanges was “only one of the options” being considered by the ministry, but that it was not the government’s final decision.
An obliging Justice Ministry also sent out a press statement saying that the ministry had been working on the legislation of a special law to close all cybermoney exchanges, but would push for it after further discussions with relevant government offices.
The market returned to calm as panic-selling stopped and prices bounced back. The one-day episode, however, showed how inept and unprepared our government is in dealing with what has become a potentially explosive economic and social issue.
Besides, there is a persistent suspicion that what the justice minister said was an official government decision. In fact, Park said that his ministry had consulted related ministries. Financial Services Commission Chairman Choi Jong-ku backed Park’s statement.
This supports the belief that the decision was made at the government level -- perhaps with the involvement of the presidential office -- but Cheong Wa Dae pulled it back in consideration of its political impact.
There are some grounds to the opposition argument that the presidential office could not ignore the protests because about 60 percent of digital currency investors are people in their 20s and 30s, who form a major support base for the Moon government. Some also argue that the government considered the upcoming local elections.
Politics aside, the rollercoaster movement of the cryptocurrency market shows how volatile it is and how sensitive it is to government policies. The bigger problem is that the government has done little to tackle what has become a speculative market in which people take high risks to make quick money.
The Korean cryptocurrency market is abnormal in many respects. The crypto craze drew about 3 million investors, including teenagers, and Korea accounts for 20-25 percent of the global transactions of cybermoney. Local prices of major cryptocurrencies are about 30 percent higher than those in international markets.
There is no doubt that this is a speculative bubble, which could burst at any time. The recent voluntary shutdown of a virtual currency exchange in the wake of a hacking attack is one good example of the industry’s vulnerability.
The fundamental problem is that government policymakers have been sitting back while crypto exuberance has swept the country. Moon must take charge of the issue promptly and press the government to work out comprehensive, effective policy measures and guidelines for the cryptocurrency market.