The RBI Governor, Shaktikanta Das, has rightly flagged ‘far deeper issues’ involved in virtual currencies that could threaten India’s economic and financial stability. He has emphasised the need for well-informed discussions before any decision on cryptocurrencies is taken at the highest level. This is the second time in a week that the RBI Governor has highlighted the perils of new-age currencies, while raising doubts about the number of investors trading on them and their claimed market value. Former Finance Secretary Subhash Chandra Garg has drawn attention to the crypto challenges faced by the government: hawala dealings; investments worth billions of dollars routed abroad; and evasion of capital gains tax.
These remarks come days after the Parliamentary Standing Committee on Finance held a meeting with various stakeholders to discuss the pros and cons of crypto finance. With the government likely to introduce a Bill on cryptocurrencies during the upcoming winter session of Parliament, it remains to be seen whether a regulatory mechanism will be worked out instead of imposing a blanket ban. Fears over the use of cryptocurrencies for unlawful activities such as money laundering and terror financing have prompted several countries, including China, Russia, Nigeria and Turkey, to curb or prohibit trading in bitcoin and other digital currencies. However, there are reports that cryptocurrency trading continues to thrive in Nigeria — with transactions worth $400 million being conducted last year — as wily traders have found ways to circumvent the ban, exposing more people to online fraud.
Lack of transparency in the evolving crypto industry makes foolproof regulation or prohibition an onerous task. Volatility of cryptocurrencies is another vital aspect — you never know when the bubble will burst. Bitcoin, which had touched a new high of $69,000 last week, dropped to $58,600 on Tuesday. While taking a call on legitimising cryptocurrencies, the Indian government must factor in the prospect of a crypto crash that may hit millions of investors. For a start, the Centre should crack the whip on advertisements making misleading claims of enormous returns on cryptocurrency investments.
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