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What should India do with Cryptocurrencies
Read more on - Polity | Economy | Schemes | S&T | Environment
- A consufing scene: In 2020 and 2021,
India witnessed many developments on the global front within the Bitcoin (BTC)
and cryptocurrency space. Some large firms have embraced it, and some have
invested in it too. Firms like PayPal have openly embraced and enabled purchase
of BTC and other digital assets for their massive user bases. Canada has
approved the world’s first BTC exchange-traded fund (ETF). Several US companies
like Tesla, MicroStrategy and fintech company Square have added BTC holdings to
their treasuries, while large funds of repute have publicly disclosed their BTC
investments.
- A new law in India: A new Bill listed for introduction in Parliament seeking to bar all private cryptocurrencies threatens to leave India out of this new ‘financial internet’. An official digital currency approved by the Reserve Bank of India (RBI) and private cryptocurrencies are mutually exclusive. A digital rupee is an excellent domestic policy that can be complemented with a foreign policy supported by global public blockchains like BTC and Ethereum.
- No one knows: The actual contents of the Bill were unknown till date, but it is in the interest of GoI, the bureaucracy and India’s citizens that such a Bill be finalised after careful considerations from industry, key technologists, global regulators and millions of Indian investors who have investments in digital assets. To ensure there is a dialogue with the government, India’s leading crypto companies, venture capital investors and experts have joined hands to build awareness among policymakers and the public about cryptocurrencies through the #IndiaWantsBitcoin campaign, with the aim that regulators will look after their concerns while drafting the framework of the Cryptocurrency and Regulation of Official Digital Currency Bill.
- What if no discussion: A failure to regulate cryptocurrencies will be a futile effort that will lead to huge economic losses for India, creating a crypto black market. Bans in countries like Russia and Nigeria have proven ineffective, as an effective ban can only be achieved by shutting down the internet. There is a thriving cryptocurrency ecosystem in India. Dismantling this ecosystem will result in losses worth billions. Further, it will put India in a peculiar position as an outlier while leading economies like the US, China, Japan, Germany, South Korea and Australia would have already accepted cryptocurrencies, building strong regulatory frameworks and innovation hubs around them.
- What if it's banned: Some experts feel that banning cryptocurrencies will dent India’s reputation as a technology hub and its standing in ‘ease of doing business’. It could make India a laggard when it comes to adopting applications based on distributed ledger technology. In terms of trading activity and holdings, India is the second-biggest BTC nation in Asia after China, and the sixth biggest in the world after the US, Nigeria, China, Canada and Britain. Some experts feel that cryptocurrencies are not ideal for India due to the misuse for nefarious reasons.
- Larger angle: The crypto ecosystem in India is still at a nascent stage, and banning BTC will further strengthen China’s position in the Asian money market. While China claims to have banned BTC, of all the G10 currencies, the renminbi has the strongest correlation to BTC over the last 12 months, at around 84%. That not only means that as the renminbi gets stronger against the dollar, so does BTC, but also that despite the ban, Chinese BTC holders continue to have large investments as a hedge against the government. If India were to ban BTC, renminbi’s position would be strengthened globally, as unlike China, India does not have vast BTC reserves. Also, India’s lack of BTC holdings could create a truly adverse scenario if it were to emerge as a global currency reserve.
- Covid was the boon: During the Covid-19 pandemic, when a majority of Indians were facing pay cuts and job losses, the average daily crypto assets trading volumes across top Indian exchanges grew by nearly 500% since March 2020 when the Supreme Court struck down RBI’s April 2018 circular. All major crypto exchanges in India are already complying with know your customer (KYC) and anti-money laundering (AML) laws. If GoI provides clarity on taxation around crypto, this industry can contribute hugely to the economy.
- Worldwide trend: All developed economies barring China have granted legal status to cryptocurrencies. Most of them are working on creating regulatory frameworks around the purchasing, storing and usage of cryptos. Australia, Canada, Japan, Switzerland and Denmark have well-developed regulatory frameworks including AML/combating the financing of terrorism (CFT) and tax-related considerations for cryptocurrencies. Many other developed economies like the US and Britain are in the process of building their frameworks. None of these countries have banned or prohibited BTC or cryptocurrencies, private or public.
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