The Indian government has always taken a negative stand on cryptocurrencies. Right from money laundering to terrorist financing, the government has cited a lot of reasons against this new asset class. According to a new report from Quartz, the government also has reservations against the possible impact of cryptocurrency on its fiat currency – the Indian Rupee (INR). The officials are worried that the use of cryptocurrency for payments may potentially
An anonymous official, who recently met members of the government on the subject, told Quartz:
“If bitcoin and other digital currencies are going to be allowed to be used for payments then whether it will end up destabilising
the fiat currency is a major concern for them. The overall impact on the financial ecosystem that it is likely to have is still unclear and it has been a challenge to convince them on this particular point.”
Another reason which may have compounded the fears of the Indian government is a report by the Bank for International Settlements (BIS). The international body is a consortium of sorts for the world’s central banks, including the Reserve Bank of India (RBI). In its report, the BIS warned that cryptocurrencies may
We think that the government fears are totally unfounded. Here’s why:
- Cryptocurrency transactions are nowhere near the scale of transactions handled by Mastercard or Visa. It will be a long time before cryptocurrencies become a dominant player in the world’s payments ecosystem.
- Even if cryptocurrencies like Bitcoin become a significant part of the global financial ecosystem, regulators can put in place enough checks and balances to ensure that it is not a threat to fiat currencies.
- Countries like the US and Japan allow businesses to accept cryptocurrencies as payments. If USD and Japanese Yen are not under threat, why would the INR be under threat?
- If cryptocurrencies do end up destabilising fiat currencies, the impact will be felt on all fiat currencies. Such an impact is possible only if the world adopts cryptocurrencies on a wide scale, and in such a scenario, the Indian government will anyway have to accept this asset class.
- Lastly, even if the government is worried about the impact on INR, it can allow cryptocurrency trading (similar to how Indians trade commodities) and ban its use as legal tender. This is a much better approach instead of a blanket ban on cryptocurrencies.
Cryptocurrency regulation is an evolving phenomenon and governments worldwide are constantly taking new approaches to regulate it. Indian government needs to watch and learn from the more progressive cryptocurrency regimes so that India does not stay behind in the blockchain revolution.