NEW DELHI: Despite the Supreme Court ruling allowing trading in crypto-currencies, neither North Bloc nor most bankers are enthused by the new beast on the street.
A little over two years ago the government had warned citizens against investing in crypto-currencies terming them as `Ponzi schemes’. That view seems intact in Finance Ministry where top officials still feel that “virtual currencies issued by private firms are not legal tender and thus have no protection for investors if and when the bubble bursts.”
Officials said RBI will have to now frame rules on crypto-currency trading in light of the apex court’s order passed on Wednesday. “Those who wish to take the risk and trade in crypto-currencies can then play it just as they would play any other games of chance,” said Sanjay Bhattacharyya, former Managing Director of State Bank of India.
A top Department of Economic Affairs official pointed out “these digital currencies are issued by private firms and not backed by any sovereign state. Their prices are arrived at through pure speculation and hence playing them will always remain akin to playing the Russian roulette. ”
In December 2017, the Ministry had through a statement warned “there is a real and heightened risk of investment bubble of the type seen in Ponzi schemes which can result in sudden and prolonged crash exposing investors (in virtual currencies), especially retail consumers losing their hard-earned money.”
Lobbyists for cryptocurrencies have long been seeking some form of legal recognition. However, a cautious North Bloc has stalled pointing out that investments in crypto-currencies could be used to launder illegal or undeclared wealth and are really mere speculative trading.
Economists say to qualify as a `currency', whether issued on paper, coin or digitally, the money issued should represent a stable store of wealth, be backed by a Sovereign state which stands guarantor to its value and be generally acceptable. Digital currencies issued by private corporations fail on at least two counts by this definition point out analysts – stable store of value and Sovereign guarantee.
Other than sovereign states, one of the few corporations which has in historical times issued its own currency was the East India Company and it did so after it assumed the status of a Sovereign power by taking over rich territories in India.
Economists point Even the Pacific island societies which issued cowry shell currencies in the past, issued them because a rudimentary state-backed those currencies.
Sometime back an inter-ministerial committee, in a report had recommended banning all privately circulated cryptocurrencies and imposing heavy fines and even jail terms for those dealing with unauthorized digital currencies.
The panel which included the then finance secretary S.C Garg however also asked the Government to keep an open mind on a possible official digital currency which could be launched by the Reserve Bank of India.