The Indian Prime Minister recently convened a meeting to discuss the management of the nation’s cryptocurrency sector. He emphasized the need for progressive and innovative steps, given the unregulated nature of the crypto market. As it stands, no legislation encompasses cryptocurrencies within India. However, they are not illegal, as the Supreme Court overturned a trading ban on cryptocurrencies imposed by the Reserve Bank of India in 2020.
Comparing Cryptocurrency Policies
The approach to cryptocurrency differs widely between countries. China has outlawed all cryptocurrency transactions, essentially enacting a complete ban. In contrast, El Salvador fully accepts Bitcoin as legal tender.
The Potential Upsides of Cryptocurrency
There are several advantages associated with the use of cryptocurrency. Their utilization entails fast and cost-efficient transactions. This is particularly the case for international exchanges as these transactions bypass several intermediary handlers before arriving at their destination. Cryptocurrencies are an attractive investment prospect because they have a limited supply, much like gold. Over recent years, their value has soared faster than other financial assets, rendering them a promising investment opportunity. Furthermore, due to their high demand and consistent price increase, individuals tend to retain rather than spend their cryptocurrency holdings, having a deflationary effect on the currency.
Worries Stemming from Cryptocurrency Use
However, there are a number of concerns regarding cryptocurrencies. One is the barrage of advertisements enticing people to profit quickly from the crypto market. Many worry that this type of marketing, particularly when it is non-transparent and over-promises, may mislead young people. Additionally, unregulated crypto markets could serve as conduits for money laundering and funding terrorism. There is also the issue of extreme volatility, as demonstrated by Bitcoin’s erratic fluctuation between USD 40,000 and USD 65,000 in the first half of 2021.
Macroeconomic and Financial Stability Concerns
The Group of Crypto exchanges reported that Indian retail investors have poured over Rs 6,00,000 crore into crypto assets. The volume of this unregulated investment raises concerns regarding macroeconomic and financial stability. Additionally, the Securities and Exchange Board of India (SEBI) voiced concerns over its inability to control the “clearing and settlement” of cryptocurrencies and its inability to guarantee counterparties as is done for stocks.
What’s the Next Step?
India has yet to present the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which would establish a regulatory framework for the introduction of an “official digital currency”. The pressing need is therefore to hasten the passage of this bill and develop regulations to manage cryptocurrencies. As part of this process, global partnerships and shared strategies will be needed to develop a comprehensive framework on cryptocurrencies.
