Solution to Puzzle Tomorrow

The Economic Times 27th November 2021 Save

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Context: Crypto trades continue to grow rapidly, with over 1.5crore investors reportedly holding Rs.15,000 crore of digital assets.

Challenges before India regarding crypto currency

Volume of Trade: The number of investors growing rapidly.
Issues to ban: Banning is practically impossible to do in India, especially in respect of its decentralised, open-source system.
Supreme Court intervention: Supreme Court struck down the circular issued by RBI prohibiting regulated banks and entities from providing services related to cryptocurrency, thus allowing crypto exchanges to use banking channels.
Risks of Cryptocurrencies: Several risks lurk in allowing cryptos -

Ill-informed investors could get hurt, lured into investing in a relatively volatile asset class they don’t understand.
Monetary sovereignty and, therefore, the effectiveness of the policies could be dented.
Capital flight could hurt the entire capital management framework.
Crypto could well be a channel for illegal activity and tax evasion.

Way Forward

Transparency to cross-border transactions: Crypto exchanges will have to meet the highest standards of governance and countries should collaborate for regulation and learn from each other.
Amending laws: Especially Prevention of Money Laundering Act (PMLA) and Foreign Exchange Management Act (Fema) in India.
Create awareness: Investors must be made aware of cyber-thieves seeking access to their cryptocurrency wallets.
Robust protective systems and protocols: Critical action required for managing cypto related crimes.
Counter policy: Nations should launch their own digital currencies in due course and to be sovereign-backed, and linked to a reserve asset like the dollar, as opposed to being backed by just an algorithm as today’s cryptos are.