Cryptocurrencies are secure and anonymous, which is why even central banks are forced to weigh in. (Representational Image)
Cryptocurrencies are secure and anonymous, which is why even central banks are forced to weigh in. (Representational Image)

Need a foolproof framework for digital currencies

The government too is reportedly open to the idea and may soon introduce the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.

The latest bloodbath in bitcoin prices has put the spotlight back on cryptocurrencies. Digital currencies aren’t legal tender, have no intrinsic value and strictly can’t be categorised as currency, commodity or an equity. Far from being a substitute to fiat currencies, they aren’t even a reliable investable asset class right now. Yet, their prominence positions them as the future of finance. There’s both legal and regulatory uncertainty in most countries, but because they are not illegal, some allow their use in payments for goods and services, others as a store of value attaching it to commodities like gold and oil, whose attributes are comparable to money, and can be used as a medium of exchange. Globally, there are over 100 million users, of which an estimated 7-10 million are in India with total holdings worth between $1 billion to $1.5 billion.

Cryptocurrencies are secure and anonymous, which is why even central banks are forced to weigh in. As per the Bank of International Settlements, more than 50 global central banks have plans to launch a central bank-backed digital currency. In India, currently there’s both legal and regulatory uncertainty, but trading isn’t illegal. In 2018, the RBI had banned trading in cryptocurrencies, forbidding banks from dealing in transactions related to bitcoin and similar assets, but the Supreme Court quashed it in March 2020. Despite the RBI often voicing its apprehensions, it may roll out its own digital currency after all.

The government too is reportedly open to the idea and may soon introduce the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. But what happens to existing private cryptocurrencies, which the proposed Bill intends to prohibit? Importantly, should the RBI or Sebi regulate cryptocurrencies? In the meantime, the Ministry of Corporate Affairs has made it mandatory for companies to disclose trading and investments in digital currencies. It should use this data to set up a foolproof framework preventing their use in illegitimate activities, including the re-routing of black money. Taxation rules too need to be ironed out, besides, of course, the need to improve corporate governance.

Related Stories

No stories found.
The New Indian Express
www.newindianexpress.com