Cryptocurrency: Why is the Government Concerned?

The crypto sector is currently one of the fastest growing investment markets in the world and India is not far behind. Over the past few years, as real interest rates have declined, traditional and even first-time investors have been looking for high-yield investment options and cryptocurrencies have been an attractive option.

More than 100 million Indians, largely young individuals, but also senior citizens are said to have invested in cryptocurrencies, taking the total investment in cryptocurrencies to over USD 10 billion in 2021 from USD 1 billion in 2020. was slightly less than

Amidst tremendous price volatility in the crypto market, the Union Government is set to introduce a bill to regulate crypto assets and cryptocurrencies in India in the ongoing winter session of the Parliament. Earlier in 2019 and in February this year, the government tried to introduce legislation to regulate crypto, but those efforts had to be abandoned. Earlier, in 2018, the Reserve Bank of India issued an order prohibiting banking support for the buying and selling of cryptocurrencies, which was overturned by the Supreme Court due to lack of legislative force.

To understand why the Reserve Bank of India and the government are so apprehensive about mass adoption of crypto in India, it is imperative to recognize the design of cryptocurrencies.

Hitesh Malviya, founder of itblockchain.com, said that the government is concerned about the potential risks associated with the rise of cryptocurrencies such as money laundering and scams.

“These risks are also tied to the INR, or any other fiat currency, so it is impossible to remove these risks from both fiat and cryptocurrency. But with the right regulation, and investor awareness the government can at least provide investors with a shield. , thus reducing the impact of exposure,” he said.

Ashish Anand, Co-Founder and CEO of Bru Finance, said that there is currently no regulation or ban on cryptocurrency in the country. The Reserve Bank of India has maintained its strong views against cryptocurrencies, saying they pose a serious threat to macroeconomic and financial stability.

“Undoubtedly, from the lens of economic sovereignty and monetary stability, a cryptocurrency needs to be regulated. Supporting the growth of the sector and its elements such as institutional custody and clearing operations, development of information infrastructure, and licensing of skilled financial advisors A regulatory body to have crypto assets would work wonders for the Indian crypto sector,” he said.

concerns

1. What gives bitcoin value? As the name suggests, cryptocurrencies like bitcoin are designed to act as a medium of exchange by using cryptography technology, i.e. these cryptocurrencies are not issued by any country, any asset/ Sovereigns are not backed by guarantees and limiting the flow is extremely difficult. of these cryptocurrencies within a particular geography.
2. Loss of Monetary Sovereignty: Economics students will be very well aware of the role of central banks like RBI in determining the money flow within the economy. Using monetary policy tools, the RBI controls the inflow and outflow of money in the Indian economy with the aim of achieving a balance between economic growth and inflation. If cryptocurrencies like bitcoin are to become an important medium of exchange in the country, it will be very difficult for the RBI to manage the money supply using monetary policy tools, resulting in loss of monetary sovereignty by India. This is a concern shared by all the major economies of the world including India.
3. Flow of money from one country to another: Moreover, the easy in/outflow of cryptocurrency across borders makes cryptocurrencies ‘hot money’ and even though they are accepted as crypto assets, RBI is such hot money leaving India’s shores in times of economic crisis. apprehensive about.
4. Money Laundering and Terror Financing: The pseudo-anonymity and censorship-resistant features of cryptocurrencies make them very easy to use for money laundering/counter-terrorist financing, making cryptocurrencies a favorite among fugitives and fraudsters. While there are tools to track such nefarious activities, the lack of trained manpower in law enforcement among regulators and government agencies makes it easier for bureaucracies to ban cryptocurrencies altogether than to monitor activities on the blockchain. Is.
5. Tax Evasion: Tax evasion using crypto transactions is another major concern of the government. It has the potential to facilitate illegal activities, including widespread tax evasion. It provides a way for investors to save income from the tax authorities. As such, it can create a tax gap, which can hurt the government.

Read more: Bitcoin will not be accepted as currency in India: Nirmala Sitharaman

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