The RBI stand on crypto lacks balance

Cryptocurrencies are a platform technology. Like the Internet, they can be used for good and for bad. The network facilitates child pornography and terrorism (and cryptocurrency itself), but neither calls for its prohibition. Many of the criticisms of cryptocurrencies in the RBI Deputy Governor's speech on February 14 apply analogously to the Internet. The network, like cryptocurrencies, can also be associated with an anti-establishment ideology. Remember John Perry Barlow's 'Declaration of the Independence of Cyberspace' from 1996, in which he called on governments to leave the net alone? The cryptocurrency is criticized for being global, decentralized and without intermediaries. But why should that be bad? Email is global, disintermediates the post office, and that's useful. We're reminded of a 1995 Newsweek article that had this to say about the web: “We were promised instant catalog shopping: just point and click for great deals. … So how come my local mall does more business in one afternoon than the entire internet handles in a month?

No one expects a praise of cryptocurrency from RBI, but one would expect it to take a balanced view, so that it doesn't overlook the pros and just highlight the cons.

The speech's claim that cryptocurrencies cannot fulfill any need in the financial space can be debunked. According to World Bank data, India was the largest recipient of migrant remittances in 2021, at $87 billion. But the average cost of sending a remittance to India in 2020 was 5.4%. That translates to more $Rs 30,000 crore in cost, almost triple our annual budget for midday meals. This money could be saved, given the permissive regulations, as several cryptocurrencies allow cross-border transfers at almost zero cost in seconds. Crypto has also proven useful in a variety of other contexts, including the World Food Program and Unicef ​​feeding schemes, and helped raise billions of rupees for covid relief in India. In fact, despite the talk that a crypto ban would not harm blockchain technology, it fails to realize that several 'blockchain' innovations are powered by native cryptocurrencies, such as the Skills Development Board's certificate verification program. from the Ethereum-based State of Maharashtra, and non-fungible token (NFT) offerings from Indian creators and media houses. While the world's largest institutions and academics, including Turing Award winners, and some of the best Indian minds acknowledge the technological advancement of cryptocurrency, RBI still seems incredulous.

The speech also overlooked some relevant facts. While citing a source that estimated the value of global crime involving cryptocurrencies in 2021 at $14 billion, it failed to note that the same source found illicit activity to be only 0.15% of total cryptocurrency volume. cryptocurrency transactions. The speech also claimed that illegal transactions "have largely filtered out of the formal financial system", but did not cite the RBI's own annual report which found that the total amount of fraud in the Indian banking system in 2020-21 was over. $1.38 trillion (which is over $14 billion). However, no one would call it a "Ponzi scheme".

Even if RBI wanted to express a strong dislike for cryptocurrency, a ban call ignores our constitutional scheme. It is a basic constitutional principle that the State does not decide private matters for its citizens. The Supreme Court in a well-known case on the right to privacy declared: "The best decisions about how life should be lived are entrusted to the individual." Citizens have the right to participate in a new technological wave and be part of what has come to be known as the Fourth Industrial Revolution. Millions of Indians are doing it. RBI had already made caustic statements in the Supreme Court defending its 2018 circular on virtual currencies, which the court found to be empirically unsupported, disproportionate and therefore unconstitutional. a long line of cases has held that there is a high bar for the state to ban something. Mere aversion is insufficient. There was no underlying economic data, including projections, in the speech to show how cryptocurrency will actually "destroy" the economy. Nor was any reasoning offered as to how a crypto ban in India would solve any of the cited problems that regulation cannot solve. The speech asked how a case of improper sale would be corrected if cryptocurrencies were not banned. Some investigations would have shown that cryptocurrency fraud cases have already been prosecuted in India. In fact, law enforcement agencies use a combination of publicly available blockchain records and information collected from exchanges and banks to track down the culprits. A ban would deprive law enforcement agencies of this information.

An outright ban on cryptocurrencies is likely to be excessive and unconstitutional. Even the Finance Minister at the Winter Session of Parliament stated that an earlier bill proposing a ban is being reworked. The chairman of the committee that made that proposal is now also advocating regulation instead of prohibition. Therefore, one hopes that RBI will reconsider its extreme position. In the meantime, India may need to set up a multi-stakeholder regulatory authority, for example a crypto regulatory and development authority, with expertise in IT, regulation and economics that could help us carry the conversation forward.

These are the personal opinions of the authors.

Nishith M. Desai and Jaideep Reddy are, respectively, founders; and Leader, Technology Law, Nishith Desai Associates.