The government is set to bring a cryptocurrency bill in the ensuing winter session of Parliament to bar all but a few private cryptocurrencies and create a framework to regulate a digital currency issued by the RBI.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is listed for introduction in the Lok Sabha in the winter session, scheduled to begin from November 29.
According to a parliamentary bulletin, the bill aims to create a facilitative legislative framework for the official virtual currency which will be launched by RBI.
It doesn't mean that RBI will immediately launch a digital currency. CNBC-TV18 has picked up that the RBI will be ready with only a pilot by the first quarter of next year, but the law will basically facilitate that.
The next thing that the bill says is that it is most important to prohibit all private cryptocurrencies in India, but allow for certain exceptions to promote underlying technology of cryptocurrencies to be developed and their uses. Now, this is confusing -- prohibit but not banned.
Some exceptions are going to be allowed to develop the underlying technology. Now, what does that mean? Will one or two currencies be allowed? Again those who put their money in cryptocurrencies will be on tenterhooks as to know which one will survive if at all, and even after the bill is passed, all problems are not solved, because that is the law.
RBI feels that there is no intrinsic value in cryptocurrencies. In case of a share market there is an underlying business. In cryptos, there is only an algorithm.
Then it is very clear as Raghuram Rajan, former governor of the Reserve Bank of India told CNBC-TV18 on Monday 6,000 coins are getting traded, all of them cannot survive as payments.
The RBI governor has said on multiple occasions that the concern is about financial stability. The worry is that individuals may borrow either all their credit cards or as personal loans and invest in cryptocurrencies. If they go down very sharply, those banks will be faced with NPAs if they crash.
They are also worried that it may not be just individuals, there could be companies, unlisted companies, small companies, which are borrowing more in the name of an SME, every due diligence is not done. So you don't know where the trouble will come from the woodwork.
The RBI’s concern is also a little macro. If you start paying for your house or for your pizza in cryptocurrencies then the rupee is supplanted. Thus when the Reserve Bank wants to change rupee interest rate, there is a problem because cryptocurrencies are denominated in dollars. In other words, you are paying for your pizza or your house in dollars, that's called the dollarization of the economy. This can blunt a central bank's ability to make monetary policy that is a big issue that they have.
Raghuram Rajan disagrees with this. He feels that the crypto market is so volatile that the dollarization of the Indian economy is really far-fetched.