Relevance : GS Paper III
Recently, the Grag panel has called for a complete ban on private cryptocurrencies in India.
Recommendations of the Garg panel
- Fine of up to ₹25 crore and a jail term of up to 10 years for owning or handling private cryptocurrencies.
- Introduction of a single cryptocurrency for the whole country backed by RBI
Reasons to ban cryptocurrency
- volatility of private cryptocurrencies
- not backed by a sovereign government
- due to anonymity, they can be used to finance criminal activities.
Should crypto currency be banned?
- if cryptocurrencies are volatile, so are many other asset classes
- Banning will lead to formaition of underground market.
- It is not essential that a currency needs to be backed by an institution
- monetary policy doesn’t face any threat from cryptocurrencies
Cryptocurrency vs blockchain
The cryptocurrency is just one application of the underlying blockchain technology.
The EU regulations on cryptocurrency
- The EU is putting in regulations called AMLD-5 to tackle money laundering.
- It is a bunch of norms to make crypto transactions more secure.
Should govts issue cryptocurrency?
- It would create a lot of problems in the form of contradictions in existing regulations.
- A digital currency issued by the RBI that gets misused by criminals can affect trust in the existing fiat currency protocol.
Way forward
- Whether to invest in an asset or not should be left to the investor.
- Govt can come up with a regulatory framework.
- For exploration of the blockchain technology, cryptocurrencies should be allowed to operate.
Conclusion
Regulations on cryptocurrencies could be the best way to go forward rather than putting a blanket ban.