Source: The Hindu
Syllabus: GS 3. Indian Economy and issues relating to planning, mobilization, of resources, growth, development, and employment.
Synopsis: The government should ensure a smart regulation of cryptocurrencies instead of shutting them out.
Background
The government has given a statement to bring a law on cryptocurrencies. It is a positive step. Considering the fact that there is a doubt about the legality of cryptocurrencies in India.
- The doubt exists despite the government has suggested that it does not consider cryptocurrency to be a legal tender.
- The reason behind this disapproval is that such currencies are highly volatile, used for illegal Internet transactions.
- Also, these currencies cannot be regulated as it is completely lying outside the domain of the state.
RBI’s decision on cryptocurrencies
- The RBI sent a circular to banks and asked them not to provide services for those trading in cryptocurrencies in 2018.
- However, the Supreme Court found the circular to be disproportionate. This is for the reason that virtual currencies were not banned in India.
- RBI also not able to provide strong evidence that units regulated by RBI were harmfully impacted by the exchanges dealing in virtual currencies.
What is the challenge in regulating cryptocurrencies in India?
The Minister of State for Finance Anurag Thakur highlighted the difficulty in the regulation of cryptocurrencies.
- Regulatory bodies like RBI and SEBI etc don’t have a legal framework to directly regulate cryptocurrencies.
- Cryptocurrencies are difficult to regulate as they are neither currencies nor assets or securities or commodities issued by an identifiable user.
- Cryptocurrencies have a growing client base in India despite having legal uncertainty. Their attraction may only grow now as Bitcoin has hit new peaks in price and is gaining influential followers such as Tesla founder Elon Musk.
Suggestions on cryptocurrency:
- Smart Regulation of the cryptocurrency is a much better option than getting banned directly. Because a ban on blockchain-based technology (having scattered record) cannot be implemented practically.
- For example, China has banned cryptocurrencies and has a controlled internet; even then trading in cryptocurrencies were happening in a small amount.
- The inter-ministerial committee has recommended an outright ban. On the other hand, it highlighted the need for an official digital currency and for the promotion of the underlying blockchain technology. So, the government can ban the cryptocurrency and release an official digital currency.
The way forward
The government must resist the idea of a ban and push for smart regulation.
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