RBI wants blanket ban on crypto currencies

The Reserve Bank of India has recommended to the government that it is not just sufficient to regulate crypto currencies like Bitcoins. The need of the hour is to ban them altogether. Of course, the government will eventually be driven by the urgency of the need to ban crypto currencies, its possible global effects and the implications for the asset class as a whole. For now, the government has not given any commitment on the idea of banning crypto currencies but a lot will depend on how other central banks react to the situation.

The finance minister, Nirmala Sitharaman has underlined that it would prefer global collaboration and a synchronizing of global thinking on this subject and would not be too keen to take a unilateral decision. While the government has not exactly been positive about the concept of crypto currencies, the government has been a firm believer in the utility and the applications of the blockchain technology, on which crypto currencies are based. RBI wants framing legislation that includes an explicit ban on crypto currencies.

Sitharaman has been quite emphatic, and rightly so, that given the borderless and the seamless nature of cryptocurrencies, a greater of international collaboration and commonality of thinking was required. In the absence of that, it could lead to regulatory arbitrage and the government may end up indirectly and tacitly encouraging such regulatory arbitrage if it adopted a very high handed attitude on such matters. Finance Ministry has called for a detailed evaluation of the risks and benefits before taking any decision.

In fact the detailed regulation of crypto currencies was supposed to come in the Budget session itself, but that has not happened. Now, the expectation is that such detailing could come up during the Monsoon Session, wherein the government may try to push through a legislation on crypto currencies. However, whether it would really consider a blanket ban on Crypto Currencies is not yet known. However, no such bill has been listed for introduction in the Monsoon Session of Parliament.

Currently, the government is working seriously on crypto consultation paper which would likely outline the government's stance on crypto. That report was supposed to have been ready quite some time back, but as of now it is still awaited and that is what will provide the clarity on the way ahead. However, the government has refused to publicly articulate its stand on crypto currencies and non-fungible tokens (NFTs). Both are likely to be part of a joint legislation by the government of India and RBI has called for banning both.

While legislation on crypto is awaited, RBI has continued to work on its own digital currency, which is likely to be introduced later this year. Senior officials at the RBI have expressed hope that the Central Bank Digital Currencies (CBDC) could actually get rid of the very reason for the existence of private cryptocurrencies. Thus the debate may automatically end once the RBI digital currency is introduced and it becomes a virtual substitute which would make the crypto currency redundant. Would it really be that simple?

The answer is NO. The concept of crypto currency was a product of reckless printing of notes by the central banks. The idea was to create a currency that would be actually limited in supply. Most central banks had failed in controlling money supply and that had artificially debased most of the currencies. The crypto currency may have negative implications, but its basic logic is to overcome the basic weakness of fiat currencies. Till that problem remains in central banks, Crypto currencies will continue to have a role and a future too.