scorecardIndia finally explains its problem with private cryptocurrencies and why it is coming up with its own CBDC
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India finally explains its problem with private cryptocurrencies and why it is coming up with its own CBDC

India finally explains its problem with private cryptocurrencies and why it is coming up with its own CBDC
CryptocurrencyCryptocurrency4 min read
  • Like many central banks, India’s problem seems to be around the fact that cryptocurrencies aren’t controlled by a central authority.
  • The Reserve Bank of India (RBI) deputy governor also seems to have placed all cryptos under the bucket of “private cryptocurrencies.”
  • A bill to regulate cryptos has been ready for at least a month now and is awaiting approval from the Cabinet, according to Finance Minister Nirmala Sitharaman.
  • India Tech CEO Rameesh Kailasam told Business Insider that the Indian government could be looking to draw up a new draft under a new committee as it takes on a softer stance.
India’s central bank may have answered one of the country’s cryptocurrency industry’s biggest questions. Speaking at a webinar organized by the Vidhi Centre for Legal Policy, a top advocacy group in India, T Rabi Sankar, Deputy Governor, Reserve Bank of India (RBI), said “private virtual currencies” are at “substantial odds” to the historical concept of money. He questioned the comparison of crypto assets with commodities like gold, saying that cryptos have no “intrinsic value”.

The country’s industry has often asked questions about what the government’s definition of “private cryptocurrencies” is. The term was first heard of when it appeared in the agenda for the Parliament’s Budget session back in February-March. A bill was expected at the time, which would ban the use of private cryptocurrencies in the country. While this was unnerving for the industry, many stakeholders argued that how the government defines the term would be crucial.

“The digital currency bill to be introduced in the Lok Sabha is a welcome step. Its success will depend on the details, particularly the definition of what the bill calls 'private cryptocurrencies'. This is not a common term. Bitcoin is not privately owned by anyone. It is a public good, like the internet," Rahul Pagdipati, chief executive officer (CEO) of crypto exchange and wallet ZebPay, said at the time.

Cryptocurrencies are not 'currencies'

“Usually, certainly for the most popular ones now, they do not represent any person’s debt or liabilities. There is no ISSUER. They are not money (certainly not CURRENCY) as the word has come to be understood historically,” Sankar said during his address. This seems to suggest that the country’s central bank is indeed defining all cryptocurrencies not controlled by itself as private cryptocurrencies.

However, according to India Tech CEO Kailasam, India’s apex banking institution — the Reserve Bank of India (RBI) — and the Indian government may not be on the same page anymore.

“When the crypto bill was going to be introduced during the Budget Session of Parliament, both the RBI and the government were on the same page,” Kailasam told Business Insider in an earlier interview. “But now — with the traction digital assets have gained over the last six months, suggestions for regulation and the Supreme Court’s judgement to ‘not’ ban cryptocurrencies in the limelight — the government is looking for a middle path.”

But fears remain that the country will ban trading and use of Bitcoin, Ethereum, and others altogether.

Industry veterans have also argued that doing so might affect the burgeoning blockchain industry in the country, which comprises startups like Polygon, which was recently funded by billionaire Mark Cuban.

Startups like Polygon are built on public blockchain platforms like Ethereum. Banning the use of such tokens may make it impossible for these companies to function in the country. They will, in turn, have to shift bases to some other country where regulations are friendlier towards the industry.

Risk of social and economic consequences

The RBI deputy governor also said that the “damaging social and economic consequences” of private cryptos were one of the drivers for the bank’s consideration of a central bank digital currency (CBDC), which it could control. Sankar’s comments reinforced the fact that India’s central bank, like many others, has a problem with the fact that cryptocurrencies are not only volatile but also aren’t controlled by central authorities like themselves.

To be fair, experts have also raised concerns around CBDCs as well, primarily around privacy. While cash transactions offer a level of anonymity to users, CBDCs are traceable, which means governments could use them as surveillance tools as well.

India’s crypto bill expected in the Parliament during the Budget session earlier was called the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. It was also expected in the ongoing monsoon session of the Parliament but has been pushed further.

“It’s unlikely that the bill will get tabled during the upcoming session of Parliament,” said Kailasam. “The government is still in the process of determining whether or not to set up a new committee, keep the old one or have someone from outside come to chair the process.”

For a more in-depth discussion, come on over to Business Insider Cryptosphere — a forum where users can deep dive into all things crypto, engage in interesting discussions and stay ahead of the curve.

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