One of the main FUDs revolving around the digital asset industry recently has been India’s supposed intention to ban private cryptocurrencies. While rumors of a complete ban have somewhat been rejected by the government, officials in the country still don’t seem completely sold on the idea of legalizing cryptocurrencies.
During an interview with the Economic Times, the government’s former Chief Economic Advisor KV Subramaniam commented that the first step towards regulation would be distinguishing “between crypto as an asset and crypto as a currency.”
He further laid out the issues with officiating cryptocurrencies in either of those forms. The problem with crypto being a currency is its lack of sovereign origination or backing, according to Subramanium, who said,
“Across time, currencies have always been those that have been issued by a sovereign… What provides credence to the currency is the fact that the sovereign backs it.”
Currently, the Central American nation of El Salvador is the only country in the world to have recognized Bitcoin as legal tender.
As for crypto as an asset, Subramanium believes that the lack of an underlying asset backing cryptocurrencies makes their intrinsic volatility very high, which “attacks crypto’s attractiveness as an asset class.” While most cryptocurrencies do suffer from high volatility it should be noted that many of these assets are backed by and derive value from the networks they support, such as in the case of Ethereum.
Lastly, the economist noted that all financial innovations are essentially a “zero-sum game”. This means that rather than contributing to the “real economy”, the crypto sector is merely engaged in rotating money between hands without flowing it into the real sector.
Different views from businesses
However, he did add that blockchain on the other hand has the potential to benefit the real economy even without cryptocurrencies. Indian business and one of the world’s richest men Mukesh Ambani seems to agree with Subramanium on the merits of blockchain. He too in a recent interview opined that he believes in blockchain tech and “it’s much different than crypto.”
Another financial leader within the Indian society, Infosys CEO Nandan Nilekani has on the other hand recently purported a more positive outlook towards the cryptocurrency industry, which he believes can bring financial inclusion to the country. While he noted that crypto assets have a space in the economy, they will have to first be regulated with increased scrutiny.
And regulated they will be. Earlier today, India’s Finance Minister highlighted in a conference the need for co-operation and collective action while regulating cryptocurrencies, as it is often tough for policymakers to keep up with the constantly evolving financial technology.
