Lucas Leiroz, research fellow in international law at the Federal University of Rio de Janeiro.
While in most parts of the world, digital currencies assume an increasing economic relevance and the great powers invest in complex mechanisms of economic digitization, in India, cryptocurrencies are strongly threatened. Soon, the Indian Parliament will discuss and vote on a bill (and is expected to approve it) that aims to ban all private cryptocurrencies operating in the country. In parallel, it is proposed that the State create its own official digital currency as an alternative to the various private currencies. However, until the government actually launches its currency, the digitization-dependent portion of the Indian economy will be severely threatened.
The Indian government's fight against digital currencies is not a recent one. In 2018, the Reserve Bank of India severely limited the use of such currencies, including the most well-known ones, such as Bitcoin. Subsequently, last year, the Supreme Court banned such a decision. Now, parliamentarians are resuming the discussion. In fact, the Indian government does not interpret the use of such currencies as legal in accordance with national financial rules. This led to a recent report by the Ministry of Finance calling for all cryptocurrencies to be banned, except those issued by the state.
One of the most curious facts on this topic is that the bill is not in the public domain, so the full content of the law is not known, and it is difficult to speculate on the real intentions behind it. What will actually be banned or allowed is still unclear. At first, it is speculated that, in fact, all private cryptocurrencies will be banned, but some experts believe in possible strategic exceptions to the law, which cannot be confirmed. In any case, the mildest of scenarios will be a strict and extremely limiting regulation of cryptocurrencies, if there is no total ban.
What we must consider when analyzing the case is not the legality of cryptocurrencies - that is up to the Indian authorities - but the strategic viability of such regulation for the Indian economy. If there is a total ban, the economic impact will be huge, considering that there are currently more than 10 million Indians who own and use cryptocurrencies, totaling an active amount of more than 2 billion dollars in digital currencies. If there is a ban, what will happen to this money? This is certainly a concern for millions of Indian citizens and their financial dependents.
Still, there is a complex business structure emerging around cryptocurrencies, with 340 Indian startups working in the area of cryptography, according to data from the Reserve Bank of India. Such startups employ more than 10,000 Indians and play an important role in national economic life. Again, with a ban, not only digital money will be banned, but also jobs paid with physical money for activities related to cryptography will be extinguished. Thousands of people will lose their jobs and their source of income, which is certainly relevant in a country that suffers from high levels of poverty.
However, without a doubt, the impact will be even greater with regard to India's position in a world full of changes and innovations. Currently, no economic power is banning cryptocurrencies, but investing even more in this sector and looking for ways to use its benefits to increase economic and technological development. The cryptography sector is valued globally at more than 1.5 trillion dollars and is still growing. The pandemic, in particular, brought the need to invest even more heavily in this sector as the old structures of production and circulation of goods and capital changed, boosting a more dynamic and technology-dependent system.
By banning or excessively limiting digital currencies, India will be declining its position in the world and becoming increasingly isolated. Still, dispensing with the use of cryptocurrencies is particularly contrary to Indian national interests when we take into account Modi's national plan to reach a GDP of 5 trillion dollars by 2024. In fact, investing in digital money is a fundamental step for the Indian government to fulfill its goal - and if it prohibits such currencies it will be really difficult to reach the mark intended by Modi.
It is true that we must also consider the concerns of the Indian government. Cryptocurrencies, despite being a profitable sector, have several side effects in their use. In fact, digital money can be sent to anyone anywhere and in an extremely easy and fast way, which makes the enforcement work on the part of the authorities much more arduous. However, the difficulty of enforcement and the possibility of sending money to terrorists or criminal organizations cannot serve as an excuse to halt the economic growth of an emerging country. All nations are dealing with the same problem and are trying to resolve it through strict legislation and a competent tax system. The US, Sweden and the UK are examples of nations that are having reasonable success in regulating these currencies without detracting from their economic benefits. It is a step to be taken by India and is far more profitable than a total ban or a maximum limitation.
The possibility of banning or imposing an extreme limitation on private currencies should only be considered by the Indian government if the State already has an official national cryptography system strong and sufficiently versatile to efficiently replace all private currencies without economic loss, and that is not the current reality. So, the best path for India remains to invest in mechanisms for regulating private currencies while seeking to develop a strong national currency, otherwise, it will not be able to keep up with the growth speed of other nations, which increasingly digitalize their economies.