RBI Governor On Crypto Crisis | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Expressions made

• Shaktikanta Das proposed a ban on cryptocurrency.
• The governor of RBI expressed his belief that cryptocurrencies lack intrinsic value.
• He also compared trading cryptocurrencies to gambling.

Cryptocurrency

• Cryptocurrency is a type of digital or virtual currency that employs cryptography to provide security.
• It utilizes decentralized technology to facilitate secure transactions and store funds without requiring personal identification or the involvement of a financial institution.
• All transactions are recorded on a distributed public ledger known as blockchain, which is maintained by currency holders.
• Bitcoin, Ethereum, Ripple, and Litecoin are among the most common cryptocurrencies.
• Facebook has revealed plans for a digital currency called Libra, which will be available in 2020 and enable billions of users worldwide to conduct financial transactions online.

The Need for Regulation:

• Regulation is crucial to prevent serious issues, ensure responsible usage of cryptocurrencies, and safeguard investors from market volatility and potential scams. 
• However, any regulatory framework must be clear, transparent, consistent, and guided by a clear vision of its objectives. India has yet to fulfill these requirements, putting it at risk of falling behind in the global competition.

RBI's Opposition to Cryptocurrencies

• Lack of Sovereign Guarantee: Cryptocurrencies lack sovereign backing, rendering them unsuitable as legal tender and posing a risk to consumers.
• Market Volatility: Cryptocurrencies are highly speculative, making them vulnerable to sudden fluctuations. For instance, the value of Bitcoin plummeted from $20,000 in December 2017 to $3,800 in November 2018.
• Security Risks: Losing one's private key, which is impossible to reset, results in the loss of access to one's cryptocurrency. Furthermore, technical service providers, such as cryptocurrency exchanges or wallets, are at risk of malware and hacking attacks.
• Money Laundering: Cryptocurrencies can be used for illicit activities, including money laundering.

International Practice

• Regulatory oversight of the cryptocurrency market is intensifying in South Korea and the United States. South Korea recently proposed legislation to heavily regulate exchanges or ban them altogether.
• Meanwhile, a popular cryptocurrency platform in the United States was ordered by a court to provide the Internal Revenue Service with information regarding 14,000 accounts. 
• Global tech companies like IBM are creating their own cryptocurrency platforms to facilitate secure and transparent transactions. 
• The world's top central bankers are also preparing to issue their own Central Bank Digital Currency (CBDCs). Japan has legalized Bitcoin exchanges.

Conclusion

• There is a need for greater investor awareness of cryptocurrencies. India is poised to enter the next phase of the digital revolution and has the potential to leverage its human capital, expertise, and resources to emerge as a leader in this wave. 
• This will require sound policymaking. Blockchain and crypto assets will be an essential component of the Fourth Industrial Revolution, and India should not be left behind. The RBI aims to understand the potential impact of crypto trading on financial markets, rather than impeding new technologies or stifling innovation. 
• Cryptocurrencies are not currently considered legal tender and there is no immediate need to grant them this status.