Is it Time for India to Get a Rupee Cryptocurrency?
As the threat of #coronavirus casts a pall over the world, India must prepare itself to battle the twin troubles of a viral outbreak and economic collapse.
There is no way to sugarcoat the fact that our economy is currently in shambles. The Union Budget of 2020 has done little to repair things and with the unraveling of the Yes Bank scandal, the public faith in existing financial systems is now lower than ever.
The Finance Minister's silence since the Budget session is echoing through the rapidly emptying alleyways of India, as people quarantine themselves and wonder what their livelihoods will look like when all of this passes.
India has been heading towards a sharp recession for a while now, its days of being the fastest growing economy long gone.
In the midst of all this, tackling a worldwide pandemic will be a massive and difficult task for the incumbent government. As factories close their gates and offices pull their shutters, the Indian people are soon to be left with immense insecurity about their financial future. For the daily wage earners, and workers in the informal and unorganised sectors, the prospect looks even worse. Meanwhile, as the count of corona victims rises, the government will have to focus on bolstering the healthcare system. As the viral outbreak escalates in seriousness, it will have to allocate tangible resources to battle the pandemic, and merely calling for curfews will not be enough to get them off the hook. And, when the central and state governments get busy containing the proliferating infection, they will have even less time to figure out ways to resuscitate the struggling economy.
Currently, especially with its attention divided, the central government seems to be ill-equipped to alleviate the crisis in the economy. Even the Reserve Bank of India seems unprepared to handle the avalanche of banking scandals that may follow in the heels of the Yes Bank fiasco.
With the economy and financial system in tatters, is it finally time to embrace a cryptocurrency solution?
How does a Cryptocurrency work?
Cryptocurrency has long been the blue-eyed boy of the fintech market, even though it has not quite managed to endear itself to the likes of the Indian government or its apex bank.
But as both these entities get busy managing other crises, it is perhaps time to get ourselves a rupee cryptocurrency. A cryptocurrency is essentially a digital value built within a distributed ledger secured with cryptography and covered in layers of protection.
It is usually built on a blockchain, which is a set of discrete and disparate computer systems that keep the chain up and running.
It is a decentralised mechanism, because no one computer can control the total blockchain.
While there have been a lot of fears about blockchain syndicates breaking into these systems with brute force, the decentralised nature of it has largely been enough to protect the most robust blockchain networks.
Now, since decentralisation is a salient feature of crypto, many governments, especially conservative ones, find it hard to embrace it without suspicion. After all, giving up the control of money to a decentralised ledger mechanism means that the government has little control over it. The obvious advantage of this for the population is that they get a currency that cannot be manipulated by the authorities, but it is not difficult to see why most governments would not be all too willing to go down that route.
But now, in India, with the faith in banking intermediaries on the verge of collapse, it may be time to introduce a government cryptocurrency that uses DLT and the basic premise of cryptography to safeguard people's access to their hard-earned money. Instituting peer to peer transfers, and removing many corrupt intermediaries from the system may be the only way to contain the virus that has infected the Indian banking system. I know that many crypto purists would find it hard to stomach the idea of a government-backed cryptocurrency, because it introduces complications of centralisation in a decentralised system. But as some examples around the world have shown, it may be a worthy compromise in times of crisis.
India's Stance on Cryptocurrencies
While the government has long waxed eloquent about the merits of blockchain technology in general, it has been extremely hesitant in extending the same enthusiasm to blockchain's application in fintech.
Time and again, government reports have harped on the evils of cryptocurrency, and have even sparked rumours of an iron clad crypto banning bill. The government's sharp distaste for cryptocurrency apparently springs from its association with money laundering scams and high volatility. But if India's long history of Ponzi schemes and laundering scams are anything to go by, cryptocurrencies will not be the first, or only offender in this regard. Moreover, of late, Bitcoin, the best-known cryptocurrency, has been experiencing a fall in its volatility. Right now, its volatility can be said to be quite similar to that of many national currencies.
The Reserve Bank of India has also echoed the sentiments of the Indian government, repeatedly issuing directives to banks and forbidding them to deal with crypto exchanges and traders. Even though a Supreme Court order has recently stayed that directive, it does not seem like apex bank has shifted from its original viewpoint. But despite all the hostility towards cryptocurrencies, one report from a governmental inter-ministerial committee leaves us with a tiny flicker of hope.
In a recent report by inter-ministerial committee, by Subhash Garg
It bashed private cryptocurrencies for their role in scams and wrongdoing, but, interestingly, hinted at the possibility of a rupee cryptocurrency.
Even though the government has not attempted to flesh out this idea yet, this might be the perfect time to do so, especially as India rapidly moves towards a recession.
Role of Cryptocurrency in Alleviating Recession
Many countries like Bolivia already have some experience with government-backed cryptocurrencies, even if the implementation has not worked out as well as one would have hoped.
A recession is typically associated with a loss of faith, and the government promissory notes are some of the first things to be hit hard by this decline.
The introduction of a rupee cryptocurrency can guard against this issue, as it removes the need for trust from the equation. When money is based on the DLT, there is no need for the people to trust anyone, and they can establish peer to peer exchanges with a secure cryptographic pin on both ends. The end to end encryption of the money also guards against potential loss of value, and can play an important role in tackling the issue of dwindling faith as the country plunges deep into a recession.
Of course, with the large section of the Indian populace living in rural India, it may be difficult to implement a rupee cryptocurrency all that soon. Illiteracy and lack of technological awareness can be key impediments in this regard. But that is no reason why the government cannot develop and pilot such a cryptocurrency in some of the key metros of India.
As the trust level dips lower and lower, taking trust out of the equation with a crypto solution seems to be the only viable answer.