The proposed bill on cryptocurrencies to be tabled in the Parliament session next week has sparked fears of the government banning it for good. Some are holding out hope that officials may instead allow select virtual currencies to operate and flourish under a sound regulatory regime. The Jayant Sinha-led Standing Committee on Finance too is against the ban and in favour of regulation. But if there’s one authority that’s unwavering, it’s the RBI, which has been repeatedly voicing serious concerns from a macroeconomic and financial stability standpoint. It went one step ahead and banned private cryptos, but the Supreme Court struck it down last year. It’s now down to the government whether to ban them or find a middle path to allow and regulate virtual currencies and in the process make some money via taxes.
Trouble is, there’s no unanimity as to which asset class such an incredibly empowering technology belongs to. It’s variously viewed as a security, commodity, property and currency. The classification is important as regulation and taxation policies apply accordingly and currently each country is writing its own nomenclature, complicating global regulation for the boundary-less and peer-to-peer nature of cryptocurrencies. While several central banks are at different stages of introducing their own digital currencies, they aren’t strictly cryptos that allow borderless transactions ensuring anonymity.
If regulators see cryptos as undermining existing currencies, and how easily they can be used for money laundering and tax evasion, users see them as an alternative to fiat money. Firm believers argue that cryptos like bitcoin have roots in Austrian economic history and that private currencies are the ultimate answer to shrinking the growing size of the state, fighting inflation and avoiding undue surveillance of tax sleuths. While no country will hand over currency control to private entities, whichever view the government takes, it must be in harmony with others as outright bans could compel users to transact with overseas exchanges, even illegally, for regulatory arbitrage.