The government should just make it clear that India will never allow crypto currency to be a currency.
“India has officially adopted bitcoin as legal tender,” PM tweeted on 12th December at 2 am, The suddenness of the announcement, its timing and mode of communication would have shaken any country. but he had Similar announcement was made on 8th November at 8 pm, 2016, announcing that all ₹500 and ₹1,000 notes will no longer be legal tender. Therefore, arbitrarily introducing a new legal tender was not out of the realm of possibilities. Fortunately, the tweet was later deleted, citing a “technical compromise”. Conspiracy theories aside, the country’s currency is a very serious matter.
Today, I can sell you my painting and accept cryptocurrency in return, just as I can accept peacock feathers. This is a private transaction between consenting Indian adults and the government should not be involved. Around 15 million Indians are believed to be investing in and betting on cryptocurrencies whose value is swinging wildly, reportedly putting these investors and the financial system at risk. Therefore, the government has to formulate a policy that argues.
question of trust
But why are 15 million Indians gambling on cryptocurrencies? In the hope that its value will continue to rise. This hope is based on the ultimate belief that they will be socially accepted as a legitimate medium of exchange. If I buy a cup of coffee, the shop will accept bitcoin only if they can use it to buy coffee seeds from the planter, which in turn will accept bitcoin only when it buys fertilizer for their coffee plantation. be able to use it. Cryptocurrencies can become an acceptable medium of exchange only when everyone in the society is confident that the next person will accept it. Or if the government explicitly trusts them, as with paper currency. Mudra essentially represents trust in the society. Some ‘cool’ techniques may not build social trust. In any case, social media companies have proved that if engineers are allowed to run away, they can wreak havoc in society. As John Maynard Keynes said, “there is no subtler, no surer means of reversing society than by destroying money”.
The government has to clarify that India will not legalize cryptocurrencies, which means they cannot be exchanged for rupees in a bank. This will reduce the enthusiasm for investment and speculation. Ultimately, the value of cryptocurrency stems from the expectation that it will eventually be a socially accepted medium of exchange or fiat currency.
The need for a global agreement of all major countries to jointly resolve not to accept cryptocurrencies as currencies is something we are moving forward with. Inevitably there will be some nation that will stick out and offer a loophole. For now, the Indian government should be clear that India will never recognize cryptocurrencies as currency.
regulation problem
Some experts advocate regulation of cryptocurrencies. Implicit in this prescription is that the government should give cryptocurrencies the status of a ‘financial instrument’ as only recognized instruments can be regulated. This could be a penny-wise and pound-foolish move. The rationale for regulating cryptocurrencies is the belief that millions of investors engage in risky cryptocurrency trading that can cause losses, increase volatility, promote shadow finance and create a systemic risk. This advice is subconsciously triggered by the hangover of the 2008 financial crisis caused by the mortgage business. The fear of a systemic risk has already led the world down a dangerous path of excessive financialisation, reckless money supply and Wall Street control of economic policy, creating enormous inequalities in societies. We cannot fall prey to it once again.
editorial | Regulation, Not Ban: On Cryptocurrencies
If the government recognizes cryptocurrencies as an ‘asset’ and a regulator is established to oversee it, it runs the risk of prompting speculators official approval and a ‘moral hazard’ of imposing government protections. This could distort more people trading in cryptocurrencies. India does not have the resources and governance capacity to set up a new regulatory infrastructure to monitor the interests of speculators in cryptocurrencies today or peacock feathers tomorrow. By avoiding the responsibility of cryptocurrencies, the government may be sending a clear signal that those engaging in cryptocurrencies do so at their own risk. When it becomes very clear that the government will neither legalize nor regulate cryptocurrencies in India, speculative activity will eventually subside, even if some investors lose out in the process.
Blockchain can be a powerful technology with many applications that should be encouraged; Not just as the currency of a nation. It is neither possible nor wise to ban or regulate cryptocurrencies. Make it very clear that India will never allow cryptocurrencies to be currency and stop there.
Praveen Chakraborty is a political economist and president of the Congress Party’s Data Analytics
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