Updated: November 25, 2021 9:14:00 am
Among the 26 pieces of legislation listed for consideration in the winter session of Parliament beginning Monday, is the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. The Bill lays the ground for ushering in a framework for the introduction of the digital currency that is to be issued by the Reserve Bank of India (RBI). But, at the same time, it also seeks to “prohibit all private cryptocurrencies in India”, though, allowing for “certain exceptions to promote the underlying technology of cryptocurrency and its uses”. While the granular details are awaited, doing so would be a mistake. To be sure, there are legitimate concerns over cryptocurrencies. But an outright ban, even though there are questions over its enforceability, would not be the prudent way forward. In its haste to bring about clarity on the issue, the government should not make the mistake of ramming this legislation through without a detailed discussion on the implications of its action. If the government should draw any lesson from the farm law saga, it is that passing contentious legislations in Parliament without proper debate and discussion is best avoided.
Across the world, the response to cryptocurrencies has varied. In September, China imposed a complete ban on crypto transactions. Countries including Japan and the UK have created space for their operation. The regulatory architecture, the rules of governance, the ambit of taxation depends on how the country views cryptocurrency — as a currency, an asset, or a commodity. While concerns over money laundering and financing of terrorism have been repeatedly flagged, from a monetary and fiscal policy point of view too there are valid concerns. Central banks have concerns over their monetary dominion, especially through stablecoins backed by a reserve asset. If their acceptance as a medium of exchange gains traction, the efficacy of their policies to respond to business cycles will be under question. Then there is also the loss of seigniorage revenue to contend with. Moreover, an outright ban may simply push these activities beyond the realm of enforcement, complicating matters.
The issue is contentious to say the least. Strong differences of opinion exist even among the policymakers. For instance, RBI governor, Shaktikanta Das, has repeatedly cautioned against cryptocurrencies, arguing that “there are serious concerns on macroeconomic and financial stability”. But an earlier meeting chaired by the Prime Minister was in favour of “progressive and forward looking” steps in the field of cryptocurrency. Similarly, members of the standing committee on finance, chaired by BJP member Jayant Sinha, are reportedly more in favour of regulating, not banning cryptocurrencies. Considering that not everyone is on the same page, the government should tread cautiously. The way forward should be dictated by discussions and consultations with all stakeholders.
This editorial first appeared in the print edition on November 25, 2021 under the title ‘Tread with caution’.