India's government has a vexed relationship with currency, as seen in its misguided attempt to squash ill-gotten wealth and illegal activity through a note-ban five years ago. Now, as the prospect arises of a ban on private cryptocurrencies, could we be in for another shake-up that fails to live up to its intent? On Tuesday, it listed its Cryptocurrency and Regulation of Official Digital Currency Bill for enactment in Parliament this winter session. As stated, it will aim to “prohibit all private cryptocurrencies" but permit exceptions “to promote the underlying technology". It will also include a framework for the Reserve Bank of India (RBI) to launch a digital currency. While its final form could yet evoke sighs of relief from India’s crypto sphere, which has much at stake, for now, it looks as if the Centre is ready to come down hard on blockchain-based tokens. Trading platforms and the like may be staring at a bleak future, but the same does not apply to cryptos.
1. As for ‘exceptions’ to enable blockchain-based value generation, while this sounds like a worthy concession, it may be difficult to get technical distinctions right for us to monitor the industry in a way that’s not overly arbitrary. An outright ban, thus, could end up as another case of overkill.
2. With splintered forces to contend with, a digital rupee issued by RBI could be positioned as ‘the real thing’ for online use. Official backing would lend it a unique advantage.
3.This would help RBI forestall a loss of control over commercial conditions. Yet, the ‘dollarization’ of commerce seen in some parts of the world should strike a cautionary note.
4.In turn, this would pressure RBI to keep the rupee from losing value both within India and vis-a-vis currencies like the US dollar.
5.Inflation will thus have to be kept low and stable for a digital rupee to stay competitive. Nobody can say how all this will work out. Knee-jerk bans, however, rarely succeed. Let’s regulate cryptos instead.