December 07, 2021

Breaking News

Play safe with cryptos, leverage blockchain

Play safe with cryptos, leverage blockchain
Doonited News


Given this, the Indian government would do well to not back cryptocurrencies and to keep a close watch on them.

As Parliament gets ready to debate the Cryptocurrency Bill, there is some ambiguity on how exactly the government wants to deal with private cryptocurrencies. That may stem from the fact that it is unclear on how exactly to deal with them, a problem that is probably common to central bankers around the world. They are all in somewhat of a quandary on how to regulate cryptos, whether to bar them outright or allow them to flourish as assets. The Bill says it is important to prohibit all private cryptocurrencies. This suggests there is no chance of these being allowed as legal tender. How exactly these are to be banned though is not immediately clear since many of them are operating beyond the purview of the law.

At the same time, the Bill suggests exceptions be made so the underlying technology is made available because it can be extremely useful in the payments space. That is easier said than done. We want to take advantage of the technology that is game-changing, but we simply cannot afford to risk inflating assets and creating a bubble. The government and RBI must put their heads together on this one. Not too many cryptos are likely to survive anyway because the number of use-cases are limited. Nonetheless, RBI Governor Shaktikanta Das’ concern that cryptos could lead to financial instability in the event investments in these, made by over-leveraged individuals and firms, go bust are valid. RBI worries the government’s imprimatur on cryptos might encourage more investments and that it could end badly if these lose a lot of value. These concerns are justified but, like other countries, India too much take advantage of the blockchain technology to make micro-payments on the internet and contracts cheaper and simpler.

Read Also  Bharat Forge reports profit of Rs 271 crore on demand revival

As former RBI Governor Raghuram Rajan has observed, there is little danger of the Indian currency becoming dollarised; given the high degree of volatility surrounding cryptos, the rupee would be a preferred option and, therefore, the central bank should have little difficulty in ensuring the local currency is not substituted by cryptos. As such, the risks to framing monetary policy would be ruled out. The problem, as Rajan has pointed out, is that regulators around the world are struggling to understand cryptos and, therefore, are unsure about how these should be regulated. Even if a few players are able to beat the law, it could cause considerable damage.

Given this, the Indian government would do well to not back cryptocurrencies and to keep a close watch on them. There could be a mechanism in place to track the transactions given there is no underlying business. The government could also insist on scrutiny of these players also insist on their providing information so that government can prevent fraud. While one could, in the case of Stablecoins, check the investments and their value since they are backed by hard currencies, it is much harder to deal with standard cryptos which have no intrinsic value and the prices of which are volatile. After all, should something go wrong—which is not impossible—it is the regulators who would be held responsible.

Read Also  Among Us!, Toca Life World among winners of Apple 2021 App Store Awards: Full list here

It is a tough situation for regulators since it is unlikely investments in cryptos will be discontinued even the government bans them. The government and the central bank must, therefore, try and find a way to ensure the investments are not made from borrowings from local lenders—banks, NBFCs, and so on. To this end, banks need to be vigilant while disbursing unsecured personal loans to both individuals and small businesses. Systemic risk of any kind needs to be averted. In the meanwhile, India could learn from the policies in other countries.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Read Also  BJP MP Nishikant Dubey seeks ban on cryptocurrencies, says 'Whole world is troubled by it'



Doonited News

Doonited Affiliated: Syndicate News Hunt

Source link

Doonited News

Related posts

Leave a Reply

Content Protector Developer Fantastic Plugins
%d bloggers like this: