Chinmaya IAS Academy – Current Affairs Chinmaya IAS Academy – Current Affairs
- The Reserve Bank of India (RBI) has recommended a ban on cryptocurrencies citing ‘destabilising effects’ for the country’s monetary and fiscal health.
- China has declared all cryptocurrency transactions illegal, effectively imposing a complete ban, whereas El Salvador has permitted Bitcoin as legal tender.
- At the moment, there is no legislature that covers cryptocurrencies in India. In India, owning cryptocurrencies is still not illegal. In 2020, the Supreme Court had struck down a ban on trading of crypto currency in India, which was imposed by the Reserve Bank of India (RBI).
- Central bank has been cautioning people against the use of virtual currencies since as far back as 2013.
- In April 2018, the RBI had prohibited regulated entities from dealing in virtual currencies or providing services for facilitating any person or entity in dealing with or settling them. The directive was set aside by the Supreme Court in March 2020.
- The Union Budget 2022-2023 also proposed to introduce a digital currency in the coming financial year.
RBIs Concerns
- Cryptocurrencies are not a currency because every modern currency needs to be issued by the central bank or Government.
- The value of fiat currencies is anchored by monetary policy and their status as legal tender, however the value of cryptocurrencies rests solely on the speculation and expectations of high returns that are not well anchored, so it will have a destabilising effect on the monetary and fiscal stability of a country.
Cryptocurrency
- Cryptocurrency sometimes called crypto-currency or crypto, is any form of currency that exists digitally or virtually and uses cryptography to secure transactions.
- Cryptocurrencies don’t have a central issuing or regulating authority, instead use a decentralized system to record transactions and issue new units.
- It is supported by a decentralized peer-to-peer network called the blockchain.
Benefits:
- Fast and Cheap Transactions: Cryptocurrencies are way cheaper to use to execute international transactions because the transactions don’t have to be handled by a series of intermediaries before they reach their destinations.
- Investment Destination: There is a limited supply of cryptocurrency – partially like gold. Moreover, the last few years have seen the price of cryptocurrencies rising faster than other financial instruments.
- Due to this, cryptocurrencies can become a preferred investment destination.
- Anti-Inflationary Currency: Due to the high demand for cryptocurrency its prices have largely remained on a growing trajectory. In this scenario, people tend to hold more cryptocurrency than spending it.
Way Forward
- India is yet to table the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which will lay down the regulatory framework for the launch of an “official digital currency”.
- Thus, there is a need to expedite passing of the bill and design a regulatory framework to deal with cryptocurrencies.
SOURCE: THE HINDU,THE ECONOMIC TIMES,MINT
