Context: Crypto mania is a symptom more than a cause.

Issues with Cryptocurrency

• Delusion that crypto is conjured out of thin air: It actually requires substantial material infrastructure, which a state could always control. States can shut down mining as China has done.
• Money is subject to politics: It allows a modicum of collective control over future, and allows distributive questions to be posed.
• Crypto revolution has not been met even on their own terms: It cannot boast the blend of stability, efficiency, privacy and safety that would allow it to dominate central bank money.
  • Revolution heralded by digitisation will continue in different forms, ironically facilitating more centralised and hierarchical monetary architectures.
• Ideological claims of crypto have been deflated: It is now considered more likely an asset. Some financial products bring genuine gains for the economy or development, others pose a risk.
• Risk of crypto is purely private: If people want to speculate so be it. There are issues about fraud.
• Insulation of crypto markets will be difficult to achieve: RBI should have been more aggressive in discouraging the growth of this industry.
• Facing lobbying by investors as an interest group: It is difficult to pretend that a major new class of assets, especially if volumes grow, does not have systemic effects on the rest of the economy. 
  • RBI’s case would be strengthened if it spelled out the systemic risks that crypto might pose to the stability of the real economy.
• Not fully banning and allowing it offshore will be the worst of both worlds.

Way Forward:

• RBI should avoid a scenario where it bans but then carves out exceptions. 
• If it somehow allows Indians to invest then it has to ensure that trade does not go offshore.
• Financial system should be in the service of the real economy. 

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