Cryptocurrencies – Why India Needs a Carve Out

Indian Government had introduced the draft bill “Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019”. The bill intends to lay foundation for digital rupee and at the same time it proposes a ban on private virtual currencies, including a ban on the mining ecosystem required to generate virtual currency.

Major Government across the world are supporting the virtual currency ecosystem. The changes are fundamental and structural. The undercurrent of these changes can be felt around the global financial ecosystem and writing on the wall suggest that the future of money and mode of international settlement in the next decade may be significantly different from what we are seeing today.

The proposed bill requires a serious deliberation and contemplation, as the policy choices India makes today may have a long-term ramification on strengthening India’s role and presence in the future financial order where Sovereign Digital Currencies may coexist with select stable virtual currencies (including Bitcoin). At this stage one of the moot questions is, does draft bill requires a carve out for recognition and inclusion of select private VC, which may emerge as dominant global currency in the future.

Government can afford to discard and ban the private virtual currencies, if policy makers are of the view that private Virtual Currencies may play an insignificant role and ultimately cede the ground to sovereign Digital Currencies in future. Since it’s not possible for anyone to predict the future with utmost certainty, but given signs of weaking of position of United States in the World Affairs, challenges to Dollar as a World Reserve Currency, it will be unfair and not in national interest to completely ignore the emerging trends. India needs to have a design for the future scenario where some of the global private currencies and token may emerge stronger than Sovereign Digital Currencies of some mid and smaller Nations and such private currencies may eventually end up being mainstream players in the Global Basket of Currencies.

Virtual Currency Issues are strategic from Geopolitical as well Geo- financial perspective. Visible picture of emerging landscape portrays that US and many of its allied countries have adopted a favourable policy towards Bitcoin and other virtual currencies including enabling the conducive policies for fostering the Virtual currency ecosystem. This is also coinciding with the time when US Dollar is facing challenges on its reserve status. USD still continued to play the role of Worlds reserve currency through its significant influence on international clearance mechanism body SWIFT, which manages settlement conduit of internal trade. Over the period USD influence is diminishing due to Monetary debasement, rising share of Chinese currency in the international trade, internationalisation of the RMB, growing Chinese GDP, increasing number of global Chinese bank and initiatives by other nations for developing alternatives to SWIFT etc.

Rise of Bitcoin and support to Virtual Currency ecosystem from US and allied nations shall be seen in conjunction with the reality of diminishing dollar influence. To mitigate this reality, in future Key virtual currencies along with the few Sovereign Digital Currencies may become part of global mainstream currencies. Some of these dominant private virtual currencies (US supported) along with digitised USD may act as global reserve currency, in such a way that no individual nation especially US and China combined, succeeds in posing a threat to reserve status for US currency. This is also evident from the fact that Russia and China are working on the digitisation of Sovereign currency but have banned the Bitcoin. This needs attention of our policy makers, as any recognition to BTC by China and Russia, will end up strengthening US supported virtual currency and will defeat their own digitised currency, which has a purpose of dethroning US financial dominance and bypassing the need of SWIFT architecture.

It is the time for India to re-determine its future monetary policy in the back drop of long-term strategic interest and the shared vision of our Quad and key western allies. Draft bill is welcome, as it intends to lay foundation for digitised rupee. However, the Bill requires a deliberation for a carve out for inclusion of key virtual currencies supported by our strategic allies.

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