One of the things that 2020 will be remembered for is when the cryptocurrency creed emerged from its corner and took centre stage in discussions around technology, policy and finance. Bitcoin prices have breached highs last seen in late 2017. Multiple governments across the world are investing in developing Central Bank Digital Currencies (CBDCs), which are digital versions of national currencies. The incoming Joe Biden administration in the US has announced its intent to invite crypto experts. China is a global crypto leader, and a good chunk of the leading crypto companies, including exchanges and mining, are from the mainland or are founded by Chinese-origin entrepreneurs based out of Hong Kong and Singapore.
Against this backdrop, it is surprising and disappointing to see the government of India drag its feet on clarifying laws around cryptocurrencies. For the thriving crypto community in India, progress has come in fits and starts. While the Supreme Court revoked the Reserve Bank of India (RBI) ban on rupee transactions, there is still uncertainty. Given the importance of this emerging technology, here are a few things that the Indian government needs to do immediately so that it does not get left behind in the crypto race.
Clarify position on virtual currencies
Cryptocurrencies are here to stay. Regulators need to benchmark policies against those in geographies such as Singapore, Switzerland and the US and work with bodies like the G-20 to address common concerns around money laundering, taxation and potential criminal usage. Corporations and crypto firms with Indian stakeholders should have a say in the policy and regulatory development process.
Set up a sandbox
Sandboxes provide safe spaces for experimentation, and crypto sandboxes are active in multiple jurisdictions across Asia. Nodal agencies such as Startup India can work with accelerators as well as corporations that are already heavily active in this space. In addition, the banks and payment giants can get involved, attract entrepreneurs from India and the world to come in and address use cases that solve real problems. Building a thriving ecosystem can potentially shorten product development life cycles.
Commence a rupee-CBDC project
Cryptocurrencies are a heady mix of technology, politics, economics and game theory. CBDCs exemplify this the best. China’s digital yuan project is being rolled out across the country and over platforms such as Alibaba and WeChat. It is also expected to be extended to its belt-and-road initiative partners as the main currency in place of the dollar.
Iran and Russia, among others, have been working on CBDCs to attempt to wriggle out of the straitjackets of a dollar-centric world where access to the SWIFT network is paramount. Crypto puritans abhor CBDCs for the centralization that it implies, but it would behove any progressive government to explore CBDCs as fiscal policy tools. Even the International Monetary fund (IMF) has acknowledged the potential for CBDCs to address key problems with cross-border remittance, currency substitution and transparent public book-keeping. Closer to home, Pakistan’s Securities and Exchange Commission recently published a draft regulation on its stand.
Crypto is not a panacea. However, it is a powerful technological, political and cultural phenomenon. Based on conversations with lawmakers and regulators, it does seem like things are moving ahead, albeit glacially. Surely it is time to expedite the crystallization of a clear approach to cryptocurrencies.
Ramani Ramachandran is a crypto-investor and entrepreneur, and the author of an upcoming book