Editorial: Crypto needs regulation

The biggest risks of the unregulated cryptocurrency market are money laundering and terror financing. It is for this reason that India has made a strong case for regulating cryptocurrencies at a global level. Since the regulation cannot be done by a single country within its terrain, it has to be a global initiative to figure […]

The biggest risks of the unregulated cryptocurrency market are money laundering and terror financing. It is for this reason that India has made a strong case for regulating cryptocurrencies at a global level. Since the regulation cannot be done by a single country within its terrain, it has to be a global initiative to figure out a solution which will be acceptable to various countries and at the same time applicable within each of the territory. In transactions involving cryptocurrency, there are apprehensions that tainted funds could be mixed with other funds, making it much more difficult to get to the source and then shut the account down. Therefore, there should be a global consultative approach to cryptos with country-specific regulations. India’s position on the issue was articulated by Finance Minister Nirmala Sitharaman during a meeting organised by the International Monetary Fund (IMF). Cross-border payments between countries will become hassle-free and effective through central bank-driven digital currencies alone. It is with this intention that the Reserve Bank of India (RBI) is planning to come out with its digital currency using blockchain technology in 2022-23. The governments and regulators across the world remain divided on how to categorise crypto and control it from an operational point of view. But, according to a global survey report, cryptocurrency crimes have increased 312% per year on average since 2016. Cryptocurrency is an asset that has no intrinsic value and is largely driven up by speculative frenzy. India has been having a hot-and-cold relationship with virtual coins, despite being the world’s fastest growing markets for cryptocurrency trading.

There has been a sudden flurry of cryptocurrency trading platforms in India over the last two years. The industry estimates put the total investors at 20 million. Being unregulated assets, the exponential investment growth in cryptocurrencies is dangerous as risks inherently associated with a highly volatile anonymous digital currency could be severe both at micro and macro levels. Cryptos are not an alternative to traditional currencies as fiat money. They are not units of account, and their conversion rates to traditional currencies are volatile enough to be not called a stable store of value. Also, the inefficiency of the distributed ledger system limits the speed of transactions, making them unsuitable as an efficient mode of exchange. Their usage as currency on the dark web, in the trade of illegal goods such as drugs and even in funding terrorism, is now well established. It is a welcome development that the RBI is introducing a digital rupee to give a boost to the digital economy. In comparison with existing forms of money, the Central Bank Digital Currency can offer benefits to users in terms of liquidity, scalability, acceptance and faster settlement. It will also lead to a more efficient and cheaper currency management system.

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