YES Bank debacle makes a case for crypto (A new chapter can begin)

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 YES Bank debacle makes a case for crypto (A new chapter can begin)

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Read more on - Polity | Economy | Schemes | S&T | Environment

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• Losing faith: For some years now, people have been losing faith in the Indian financial system due to several reasons. A cryptocurrency solution can bypass the trust issue, and require less of it.
• Slow motion public failure: The YES Bank collapsed in front of regulators' eyes, slowly and surely! Depositors were temporarily stopped from accessing funds, thereby sending a message that cash is better than savings or current accounts. How to regain faith once lost?
• Nationalise them all: One disastrous way out is to nationalise all banks and NBFCs (they provide Rs.1.75 lakh crore in annual funding). That would be deadly socialism! Other option is to improve systems, but corruption cannot be stamped out (as YES showed).
• Enter CC: The cryptocurrency revolution based on blockchain technology offers hope. 

1. India must launch an official crypto that will simply eliminate the need for trusted intermediaries
2. China was to start one in 2020 before the virus struck, but that was to challenge the dollar's hegemony

• Post YES collapse: Depositors in India will now move towards only a few big banks. So those banks will become brash as well, and risks will rise. Another round of panic will arrive. 
• SC verdict: The Supreme Court in 2020 set aside the 2018 decision of RBI to snuff out the CC markets in India (by asking banks not to deal with CC traders and exchanges). So the govt. is considering a full ban on private virtual tokens.

1. Why is govt. wary? The CC tech is used for money laundering also.
2. But CC remains a very valuable innovation at a time mainstream banking is collapsing, and digital payments are rising

• How to build a central bank digital currency: A rupee token not needing a bank account at all, and value guaranteed by the RBI, can be created.

1. Cryptography will be used to transfer funds, and not account relationship
2. Cryptography = I know a secret, so I own the funds / Account relationship = I am who I say I am so I own the funds
3. RBI can later ask authorised parties to validate transactions later

• Who all failed in YES bank case: Every party failed – bank's management, bank's board, auditors, rating firms, and the regulator (RBI). So even though the state of India guaranteed the deposits, they ceased to be cash instantly! It would be better to rely only on RBI, with unlimited power to print money to settle IOUs (basically - CC).
• China and tokens: China wants yuan to replace the dollar as world's reserve currency. FB had tried (and failed) with the Libra. So Beijing has sped up the tokenised currency initiative.
• What Indians may do: It's a matter of time before people start storing their money in Silicon-valley sponsored tokenised money, or Chinese digital yuan. Then RBI's monetary policy will wither away.
• Summary : If the Indian state wants to keep its monetary system intact, the time has arrived to launch a digital rupee (a rupee token) guaranteed by the RBI.

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