Category: Banking & Finance

While the government has had mixed and probably even alternating stance on cryptocurrencies, the currency regulator RBI had been silent for a long time and, of late, has shared its concerns on cryptos with the government.

The securities regulator SEBI could be the ideal regulatory candidate if cryptos were to be treated as an asset class.

The Indian investor community has been euphoric about the instrument, despite noise that crypto investing could become illegal or taxed harshly. All this, when the issue of crypto was purportedly settled last year with the Supreme Court of India lifting the RBI’s crypto ban of 2018.

A to G of crypto

Arbitrary actions and reactions will continue as the financial industry has showcased so far. A few months ago, some banks stalled operations or pass-through of the crypto exchanges; purportedly, as the market guesses, to avoid irritating their regulator. The day there is clarity on how crypto would be seen under Indian law, and if it is for holding crypto as an asset, every BFSI and fintech would jump onto the bandwagon.

The banking sector’s lack of understanding of cryptos continues. It is more about understanding the liquidity of various cryptos available. As long as the rules bring clarity on what other information other than KYC would be needed, the sector can chug ahead.

Crypto consumers will stay invested probably until they get hurt by crypto falsehood or misleading investments. It is rightfully the RBI’s endeavour to have consumer protection in mind. But as we regulate the sector, we also have to move to a market-led economy, where, as long as the consumers get into an investment position without being mis-sold or forced to invest, the industry should not be ostracised.

It is also worthwhile to mention that the RBI is planning to launch its own CBDC (central bank digital currency). Debt leverage worry of the lending community will continue until they are allowed by the regulator. End-usage fears that cryptos could potentially be used for terror financing, etc., seem far-fetched, considering the granularity of its traceability. Interestingly, usage of gold or realty seems far in the wrong end of illegal funding.

Functionality of its core, which is blockchain, cannot be brushed away. It has tremendous usage and potential across public finance, banking and financial services; this could help build a secure financing backbone for the entire country as we seek to expand the inclusive-nature of our financial offerings.

The government’s stand cannot vacillate on policy matters without taking wide range of inputs, not just from a commercial angle but also from a deeper technological understanding if it can bring potential good. Let’s remember that our grandparents could not have imagined mobile-payments or transactions without seeing/touching the monies or writing a cheque. So let us not discount the emerging digital monies, for the short term notion of “not wanting it happen in my watch.”

Any asset class’ trade-worthiness and consequent liquidity is determined by a crucial factor: “trust”. Regulations can offer confidence around legality of the asset class and its usage, but cannot determine public acceptance or asset pricing. Regulations can surely offer consumer confidence and consumer protection if they are light-touch and use latest digital supervisory capabilities.

It is essential that the government does not give into knee-jerk reactions of the stakeholders, and takes a pragmatic call. It has displayed tremendous initiative by adopting digital across various facets including financial markets, e-governance, public outreach, etc. It should engage in depth with various stakeholders to understand how digital finance can be used for larger public good, and not give in to short-term worries and lack of capacity.

It’s a good sign that the Parliamentary Standing Committee on Finance has invited crypto industry players to hear their views on the opportunities and challenges. If our regulators take a leaf from this and invite multi-stakeholder discussions and seek inputs about the draft Bill, it would be a comforting exercise.

In the spirit of democratic transparency, it would be welcome if the ‘Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ is put in public domain, and comments sought.

The writer is corporate advisor and markets commentator