The government of Bharat was set to table the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 in the winter session of parliament however the bill was scrapped and a committee was formed to discuss the matter further with stakeholders. The bill aims to create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India. The bill seeks to prohibit all private cryptocurrencies in Bharat, while allowing for certain exceptions.
Recently a global cryptocurrency super app known as Crypto wire has launched a crypto index in Bharat called as IC15 to monitor the performance of the top 15 cryptocurrencies listed in the leading exchanges in the world.
This decision comes at a time when the Bharatiya industry estimates 15 million to 20 million crypto investors that already exist in India with total cryptocurrency holdings of around Rs. 400 billion catching up pace with United States which has about 23 million cryptocurrency traders while United Kingdom has estimated 2.3 million cryptocurrency traders. Cryptocurrency market capitalisation in Bharat grew from $923 million in April 2020 to $6.6 billion in May 2021.
All the major cryptocurrencies like Bitcoin, Ethereum, Tether, Doge coin, ShibaInu have nosedived by about 15-20% at India’s crypto market due to the suspicions arising out of the new cryptocurrency bill that is to be tabled soon.
Why does Bharat want CBDC?
Bharatiya government is cognizant of the fact that block chain is an evolving technology but there must be close monitoringon it as well as proactive steps become imperative. The anonymous nature of these crypto transfers have been flagged by law enforcement agencies through drug trafficking, smuggling, and money-laundering and terror financing. Private Cryptocurrencies are under no government regulations and in spite of the fact the investors are vouching for it like never before.
There are misleading, non-transparent and over-promising advertisements luring youth to invest in crypto market. Cryptocurrency backed by block chain, supported by Know Your Customer (KYC) norms lucrative though, does not make it a safe platform to invest money.
Bharatiya investors continue to investing the crypto market without detailed and clear understanding as to how crypto market works and are generating enormous returns just out of speculation. This poses serious threats to macroeconomic and financial stability of the economy as well as their claimed market value. Virtual currencies will encourage the use of US dollar as they are denominated in US dollar but the national currencies with limited convertibility like rupee are likely to come under threat.
Hence, government and RBI are working together towards a Central bank digital currency (CBDC) which is the same as fiat currency and is exchangeable one to one with the fiat currency. RBI would be managing the centralised payment system and the payment infrastructure would be created and managed by RBI. The payments wouldbe made using central bank money. This makes CBDC’s different from payment apps that are managed by the money created by banking system.
CBDC can bring less reliance on cash and still retain the value of rupee accompanied by just a fraction of currency being digital. Also, if the virtual currencies are restricted, the foreign exchange costs may become more expensive. CBDC must be such efficiently established that it can track cross border payments thereby making them quicker and cheaper also.
CBDC’s should not become another area to park for long term savings instead be kept only for making/transferring payments with necessary limits and expiriesattached. CBDC’s have to function alongside physical cash.
Looking around the world
The alarming surge in private cryptocurrencies has become a debatable issue across the countries not just in Bharat, induced by the uncertainties cryptocurrencies carry around it. Some countries are working towards having their own digital currencies backed by their central banks. Ecuador, Senegal, Singapore and Tunisia have launched their own digital currency while Estonia, Japan, Russia and Sweden are considering.
Bharat would soon join the league. Countries that have banned or restricted cryptocurrencies are China, Nepal, Vietnam, Colombia, Russia, Ecuador, Bolivia, Algeria, Egypt, Indonesia, and Turkey.
The word “ban” on private cryptocurrency in Bharat would mean that individuals cannot convert local currency into buying any kind of cryptocurrency. It may also mean transactions between banks and crypto exchanges would be stopped.
The regulators and governments have been sceptical about these virtual currencies and are apprehensive about the associated risks.
- Private crypto currencies are digitally encrypted, decentralised and unregulated and need no intermediaries to make transfers. There is no physical form of transactions being recorded and hence becomes very difficult to track payments unlike the digital payment transactions been done through UPI.
- Government cannot increase or decrease the demand of currency based on its usage, which is possible with only fiat money.
- Virtual currencies need to be stored in digital wallets and not in bank accounts.
- These currencies could diminish the public preference for the local currency which may hamper the financial system and mess with the historical concept of money.
The big bull of Bharat, Rakesh Jhunjhunwala expresses “RBI has the right to create currency”.
In Bharat, private cryptocurrency is used as a great investing option as an alternative asset class and done through one of the many exchanges and trading platforms operating in Bharat like WazirX, CoinDCX, CoinSwitch, Kuber, Zebpay, etc. But does cryptocurrencies have any value? Does this market assure any returns in future to investors? Should we not safeguard the interest of investors just like stock markets? In the absence of proper regulatory control and oversight, there is a lot of market manipulation that increases the volatility of such virtual currencies.
It is assumed that Cryptocurrency bill will be flexible enough for young block chain projects to flourish. Necessary clarity on taxation and filing of crypto assets will also be covered in the bill. It is important that a proper eco-system is created ensuring block chain technology is promoted since this is a paper-less and tamper proof technology.
Therefore, any further delay in bringing an official currency can cause a threat to financial security and individual investors in Bharat.