What is cryptocurrency row all about as India heads to have a law?

by

It has been reported that The world of money is changing with a strong push for private currency in the form of cryptocurrency. The normal world is divided into sovereign governments that regulate the affairs of nation-states and issue their own currencies for economic functions.

Cryptocurrency challenges this normal world of business and economy forcing several governments to think about regulating the emerging world of a potential parallel economy.

India is one such government that is bringing a law to regulate cryptocurrency, which is till date unregulated in the country with a growing investment in this form of currency.

FIRST, WHAT IS CRYPTOCURRENCY?

A cryptocurrency is essentially a digital currency. It is available on what is called blockchain technology. Some of the popular cryptocurrencies are Bitcoin and Ethereum. Their prices have incidentally crashed after the government listed a bill to regulate cryptocurrency in India.

Cryptocurrency is secured by cryptography, a complex software coding system. Blockchain technology of cryptocurrency could be understood as a distribute ledger that is recorded on a network of computers. Transactions in cryptocurrencies are recorded on respective blockchain ledgers.

This is a whole new world of currency, much different from the currencies known to the commoners of the world who are still getting used to digital transactions of sovereign currencies. These digital transactions mean the movement of money without the physical transfer of currencies, which was the norm in the pre-digital era, the company said.

BUT WHY IS IT A PROBLEM?

When a sovereign currency is used in any transaction, a government intermediary is involved. This intermediary is the bank. In the case of cryptocurrency, there is no requirement of an intermediary. The transaction can be completed directly between two entities.

Cryptocurrencies are a set of decentralised digital monies that are not being watched over by any sovereign banking regulator. Though there are no official data available but it is estimated that cryptocurrencies could be holding about Rs 40,000 crore or about $5.40 billion in India with about 1.5-2 crore crypto investors. A Reuters reports pegged its value at $10 billion all beyond the domain of the government. This seems to be the problem.

WHAT IS THE GOVERNMENT DOING NOW?

The Narendra Modi government has planned to introduce a bill in the upcoming Winter Session of Parliament to outlaw all private cryptocurrencies and pave the way for launching an official digital currency. Simply put, the Reserve Bank of India (RBI) will issue a sovereign cryptocurrency of India.

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 will “create a facilitative framework for creation of the official digital currency”.

There is a concern that a wider use of cryptocurrencies, if left unregulated, could be the prime source of terror funding and hawala transactions. Recent developments in Afghanistan-Pakistan region have aggravated that concern. This could be another objective of the government in bringing the cryptocurrency legislation.

WHY?

Cryptocurrency in itself is not a bad thing for economy as it allows the use of modern technology to secure the use of currency and transactions of the same. The RBI, however, till now consistently opposed digital currencies identifying them as a threat to the sovereign banking and currency system.

The RBI feared that cryptocurrencies could become a potential tool for money laundering. But then, these views were expressed for private cryptocurrencies. Cryptocurrencies are fundamentally designed to be anonymous. But this challenge could be addressed if the central regulator has a cryptocurrency of its own.

NOT UNOPPOSED

The circulation of cryptocurrencies has created a new kind of stakeholders, who express themselves through crypto exchanges. They oppose a blanket ban on cryptocurrencies. In fact, in March 2020, they moved against the RBI direction prohibiting trading in cryptocurrencies at the Supreme Court, which lifted the ban.

SO, WHAT NOW?

The government’s bill, in a way, recognises economic reality of cryptocurrencies. China has already moved in this direction with a digital renminbi while banning the use of all private cryptocurrencies in the country. The government would hope to prevent emergence of an anonymous parallel economy of black money by bringing cryptocurrency under the supervision and regulation of the RBI. (indiatoday)