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Moneycontrol Twitter Spaces | Crypto and India: What's the way forward?

June 08, 2021 / 09:36 PM IST
Image Source: Reuters

Image Source: Reuters

Moneycontrol hosted its maiden Twitter Spaces on June 7 with a host of experts on India and cryptocurrencies - the way forward.

Over the course of an hour, former Finance Secreatry Subhash Garg, WazirX founder Nischal Shetty, CoinSwitch Kuber's Sharan Nair and veteran banker Naresh Malhotra spoke to Chandra R Srikanth and M Sriram on the regulatory vaccum in India, the recent clarification from RBI and the future of virtual currencies.

Here are some of the key takeaways:

Crypto regulatory vacuum- There are nearly 1.5 crore Indians who have invested in cryptocurrencies, holding Rs 15,000 crore. There are over 350 startups that operate in blockchain and crypto. But there is a complete lack of regulation of this asset class today, according to former Finance Secretary Subhash Chandra Garg.

"These two (RBI & Govt) are creating an absolutely high state of confusion. As soon as the sovereign and the central bank can get their act together and is in a position to define and regulate it would be better for the country" he said,

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Regulation a global issue- While the Indian crypto space has been clamouring for regulation, the lack of clear laws is a global issue. WazirX’s Shetty says that if other countries had clear laws, India could have adapted from them. The final law could be an amalgamation of what various other countries do.

Secretive system of making laws- Garg, who headed a Govt committee that supported a crypto ban in 2019 now believes cryptocurrencies can be treated as an asset class and that the regulatory mechanism needs to be more transparent.

"Its something to do with the way we make policies and laws in the country, we have a secretive system of making laws, It would have been better for the government, central bank, and the industry to define it and the government to regulate. There has to be better communication, only then we can have a satisfactory and shared regulation for the country.

The RBI clarification helped- The banking regulator clarified last week that banks cannot use its 2018 ban order to restrict crypto activity, not partner with banks or to send customer threats of account suspension.”

It is a lot better once the RBI notification came, because before that there was a lot of confusion whether they can allow it or not. Is it okay to work with the industry, the notification says that banks have to do their due diligence before they provide for the service. It's just been a few days and we are working with multiple banks’ compliance teams, but it seems like the doors have opened,” Shetty said.

Self regulation is only a temporary solution- Crypto exchanges have agreed to self-regulate and be overseen by a board set up by the IAMAI. But self regulation cannot stop scams, cannot stop bad actors and not all crypto players will agree to self regulation either. “We are pushing for regulation. The government needs to step in and regulate because we don’t want anyone to take advantage of the lack of laws,” Shetty said.

-Blockchain and crypto hand in hand. With fears of a digital currency usurping the rupee’s position and its volatility making it a poor asset class, some say crypto should not be used at all, only its core technology of blockchain should be used. Sharan Nair of CoinSwitch Kuber disagreed though. “The narrative of blockchain and not bitcoin or crypto is very wrong at its heart primarily because the whole blockchain ecosystem is what brings public space into it.

The moment you take that away, you remove the trust of the system then it becomes more of a database then you don't need a private blockchain system.it's very well established that you cannot separate these two,” he said.

-Crypto as an asset class, not currency. By now, stakeholders across the aisle- from regulators to exchanges to investors are agreeing that in India, crypto should be used only as an asset class, not as a currency.

“We are looking at crypto currency as an asset class and not a payment mechanism. When it comes to the regulation we understand the government’s lack of clarity over crypto as a currency. So we are comfortable to promote the technology and use as an asset only. And that’s the behavior users are showing too,” said Nair.

Will banks develop their own crypto?

While some banks in India gave crypto exchanges a tough time in the last few weeks, citing the RBI circular of 2018, experts believe they are in principle more open to the technology today. Veteran banker Naresh Malhotra believes crypto is here to stay and banks realize this.

"Self-regulation over time has the tendency to tilt towards self-preservation There are some banks that are looking into this technology and trying to merge crypto into mainstream banking. A financial market is emerging so in case the commercial banks do not enter into this field they will be left behind. The banks have to provide competing products," he said.

What the CBDC will do?

While the RBI has taken a hawkish view on cryptocurrencies, it is open to the idea of a Central Bank Digital Currency. Garg said while money is digitalized quite a lot, the currency is still not digitalized.

"There are two ways, one is to do it the way private cryptocurrency has come up. If you want to confine to larger payments then you can do the wholesale kind of method but that will compete with the deposits being used as a currency", he said. "An easier and cheaper way is to convert the currency into digital wallets on people’s phones and other devices. So there is a lot of experimentation going on", he added.
first published: Jun 8, 2021 09:30 pm

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