The Indian government may be preparing for blockchain technology and even a central bank digital currency (CBDC), but private virtual currencies don't stand a chance yet.
Once the world's central banks launch their own digital currencies, most of the private ones will disappear, according to Subhash Chandra Garg, India's former finance secretary.
"The RBI (Reserve Bank of India) and the government will have to figure out how to allow the use of private cryptocurrencies on crypto platforms that have their own value transfer system," Garg said at the Business Standard Insight Out Summit October 22 (Friday).
“Private cryptocurrencies hurt government revenue in some way ... the return on investments that crypto platforms can make with the currency delivered to them does not accrue to the government. Once the official digital currency enters, most of the private cryptocurrencies and stablecoins will disappear, ”he said.
Garg topped a high level government committee to study issues related to virtual currencies. The panel was formed in November 2017 after years of resentment towards digital tokens and was introduced a report (pdf) 16 months later.
Meanwhile, the RBI in April 2018, had restricted banks (pdf) to participate in transactions related to cryptocurrencies. The decision was tipped over by the Supreme Court in March 2020. More than a year later, in May, the central bank issued a statement in which advised banks not to quote its 2018 circular to deny services to cryptocurrency platforms or investors.
Now, the official digital currency regulation and cryptocurrency bill of 2021, also known as the crypto bill, is expected to be addressed in the winter session of the Indian parliament.
Amid these developments, Garg voluntarily retired in July 2019 after being transferred from the Ministry of Finance to the Ministry of Energy during Narendra Modi's second term as Prime Minister.
How can India regulate blockchain-based services?
While blockchain technology itself cannot be regulated, it is preferable to amend or formulate laws to safeguard consumers who make use of technology-based services, the former bureaucrat warned last week.
“It could be advisable to implement a Law for the Regulation of Cryptographic Services and Assets, in line with Securities Contracts (Regulation) Act 1956 (pdf), ”Garg said.
He also saw the need for a "massive overhaul" in the Indian Contract Act of 1872, to include blockchain-based smart contracts, auto-execution agreements, with buyer-seller-agreed conditions written directly on the lines. of code.
Most blockchain-based financial services, such as trading, investing, lending and lending, and even others, are based on smart contracts. They lead to enormous cost savings and also optimize the processes involved. Customers also benefit from easier and more secure transaction methods.
Garg trifurcated the use of blockchain technology into three parts: currency, financial assets, and financial services.
"Many services, which were otherwise served in a centralized database system, are now delivered in a decentralized system, including finance ... In that sense, (blockchain technology) is much more versatile," Garg said.
However, private cryptocurrencies like bitcoin cannot be used as legal tender since their prices are market-driven and have no intrinsic value, he said.
Why should private cryptocurrencies be banned?
TO limited resources of bitcoin, one of the most popular cryptocurrencies, and the high demand for them has caused prices to skyrocket in recent years. On October 19, a single bitcoin cost $ 61,829, its highest closing level since April. On the other hand, evolving developments such as negative comments about the cryptocurrency from Tesla billionaire Elon Musk and China's crackdown on crypto services have led to a drop in bitcoin prices in the recent past. .
Such volatility it denies the idea of any currency, which, to work, must be stable and backed by a government.
Garg suggested that the RBI launch its own CBDC as soon as possible.
“Until the world develops a way to value the true value of cryptocurrencies, there will be a lot of uncertainty, speculation and volatility. That's the biggest problem, ”Garg said, advocating a common international digital currency to facilitate cross-border payments.
Using CBDC for international payments
Currently, cross-border payments are cumbersome, expensive, and time-consuming, increasing credit and settlement risk for all parties involved in a transaction.
The process can become easier with CBDCs once common international standards govern how various systems operate with each other.
TO cross-border experiment Backed by the Bank for International Settlements (BIS) and the central banks of Hong Kong, Thailand, China and the United Arab Emirates, it showed that digital currency can lead to faster and cheaper global money transfers.
The project developed a prototype that reduced the time of cross-border transfers from days to seconds, according to the BIS report (pdf).
