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India’s Crypto Dilemma: What’s At Stake

India’s Crypto Dilemma: What’s At Stake

  • Currency internationalisation is the widespread use of a currency outside the borders of its country of issue

“You can literally store billions of dollars of BTC on a scrap of paper.”

Balaji Srinivasan

It would be ridiculous, to say the least, if a law enforcement agent showed up at your door on a Tuesday afternoon to rummage through your trash can. But if a country bans cryptocurrencies, expect such scenes to be a regular fixture. There is no way to intercept your crypto transactions online, thanks to blockchain technology. The only way to round up the culprits will be to look for hard evidence, like a piece of paper where the passcode to your crypto reserves is scribbled down. 

According to angel investor Balaji Srinivasan, banning cryptocurrencies is not feasible technically, politically or socially. Bans don’t work beyond borders. As digital currencies catch on, the countries favourable to crypto/digital currencies stand to gain.

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Last month, we read India’s Reserve Bank has plans to introduce an official digital currency. According to the rumoured Cryptocurrency and Regulation of Official Digital Currency Bill, the Indian government might ban private cryptocurrencies in India. 

Indian nationals holding bitcoin will have a hard time if India decides to ditch the trillion-dollar industry for a digital rupee. Experts believe crypto can be used to strengthen its national security, economy, currency, technology, and foreign policy.

Cryptocurrencies exist outside the traditional global financial system and aren’t legal tender like fiat money issued by governments. This is one of the main reasons why governments turn their backs on crypto. Whatever your opinions on cryptocurrencies, wrote Raj Dhamodharan of Mastercard, the fact remains that these digital assets are becoming a critical part of the global payments system.

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The crypto market has hit the $2 trillion mark recently. Artists are selling art via NFTs in exchange for crypto money. An entirely new ecosystem of tools is under development to leverage the benefits of blockchains and cryptocurrencies. A ban would undoubtedly cut off Indian developers from the world who showed potential to build the tools required to fill the global tech stack gaps. That said, a digital rupee still sounds fashionable, promising and futuristic. But, are digital currencies an end in itself? We have moved from stones to coins, from paper to plastic cards. Electronic-only transactions are inevitable. So, what’s the use of these digital currencies in the first place?

Making A Digital Rupee Work 

“Currency internationalisation is the widespread use of a currency outside the borders of its country of issue.” 

According to the rumored bill on Cryptocurrency and Regulation of Official Digital Currency, Indian government will have the right to ban private cryptocurrencies in India, including Bitcoin, Ether etc.

Apart from radical internal disruptions, a nation’s digital currency pits them directly with the US dollar, which has been the standard since the end of the second world war. China is also planning a digital Yuan.

“Every yuan issued digitally will essentially cancel one yuan circulating in physical form.”

According to WSJ, the digital yuan resides in cyberspace, available on the owner’s mobile phone or on a card. Spending a digital Yuan doesn’t strictly require an online connection. Digitised money can be used to transfer funds to disaster victims at lightning speed. The flip side to digital currencies is the control of the government institutions over the user. For instance, to encourage users to spend more and boost economic activity, Beijing has already experimented with expiration dates. Now the government can even track where and what a user is spending on.

To avoid the disadvantages of volatility that comes with cryptocurrencies like Bitcoin, India will be forced to exert a stronghold over the digital Rupee to ensure there aren’t valuation differences between them paper bills and coins. Let us suppose the think tanks managed to pull off a digital rupee and have convinced its citizens to adopt. Now the question arises, what would happen to India’s position in global trade when other countries connect their digital currencies with crypto? Indian Rupee will again trail behind multiple currencies. Small business owners can now use their phone to make domestic phone calls and international ones. “So shouldn’t Indians be able to receive funds from around the world as easily as he can now trade with other Indians?” asks Srinivasan.

“A dollar-independent nation need not worry about the sanctions of the few.”

The US has weaponised the dollar standard to choke the countries that go against them. The digital Rupee need not necessarily change how money circulates typically. The RBI will probably take up distributing digital Rupee to smaller banks and app providers.

Unlike electronic transactions today, the digital Rupee — like its Chinese counterpart — can move money from A to B instantaneously and reduce risks to the financial system posed by private companies’ payment platforms.

Answering the WHYs

  • Cryptocurrencies help Indians domestically by giving them direct access to both Indian and international pools of capital.
  • India can become independent of “dollar vs yuan” trade wars in the future.
  • Some countries will facilitate trades between national digital currencies and cryptocurrencies.

By banning Bitcoin, India will be running the risk of an underground crypto movement. If the government is still keen on banning, then it might have to resort to a few radical approaches, which according to Srinivasan might include banning all immigration and emigration indefinitely and even stopping all forms of communication so that not even a word (think: crypto password) goes out of India.

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