By Arun Kumar Shrivastav
The Indian government’s anti-cryptocurrency policy which includes high taxation and denial of banking services has resulted in many top-tier crypto exchanges shutting shops in India and moving to the UAE, which is fast emerging as a hub of crypto business. The massive exodus of business and talents from the Indian cryptocurrency sector has put the government on the defensive, forcing it to come up with a nuanced response to the criticism.
Speaking at the IMF panel discussion in Washington on April 18, Indian finance minister Nirmala Sitharaman pitched for a global framework to deal with the challenges that emerging technologies such as blockchain and cryptocurrency pose to the political and financial stability of a country. She asserted that these technologies may be used for illegal activities such as terror financing.
Ten days later, while speaking at Stanford Medicine, Stanford, she said that blockchain is full of potential but the government can’t make a rushed decision on cryptocurrencies. Praising blockchain and keeping a hawkish approach to cryptocurrencies seems to be the government’s strategy for dealing with all the noises being made by the supporters of digital assets.
On Saturday (May 7), the Indian Finance Minister attended the silver jubilee celebrations of the National Securities Depository Limited (NSDL) in Mumbai. Besides Sitharaman, Padmaja Chunduru, CEO of NSDL, and Madhabi Puri Buch, chairperson of Securities and Exchange Board of India (SEBI) were also present on the occasion. The event saw the launch of an investor education program and a decentralized ledger technology (DLT) platform for securities and covenant monitoring.
Decentralized ledger technology or DLT is also known as the blockchain technology that’s used in cryptocurrencies and many other related products and services such as NFT (non-fungible tokens) and Defi (Decentralized Finance). Talking about DLT or Blockchain, Sebi chief Buch said it will bring discipline and transparency to the market by bringing real-time monitoring of securities and governance in the corporate bond market.
“Today, we have noticed that in respect of market, securities, investment, and payments, people are increasingly placing their trust in distributed ledger technology, she said.”
However, she flagged concerns over the anonymity feature of DLT or blockchain. “This (anonymity) is the single biggest differentiator between private DLT manifestations and what we commonly refer to as Central Bank Digital Currencies where it is not envisaged that this aspect of the technology would… be put to use as we don’t wish to have anonymity,” Buch said.
Speaking after Sebi Chief, Finance Minister Nirmala Sitharaman also singled out the anonymity factor of this emerging technology as a risk and called for taking precautions.
“Unless we are able to guard ourselves against that anonymous element which can itself pose an inherent risk, we probably will be exposing ourselves much more than ever we would have imagined,” she added. While she accepted that blockchain is “absolutely imperative”, she intended to draw a clear line between what the government is willing to accept and what it’s not.
“The anonymity of the person or whoever or the robot is the one which we have to be absolutely readying ourselves as … a future challenge,” she added.
The supporters of blockchain technology argue that it’s a transparent and democratic technology. Every entry to the blockchain has to be verified and validated by multiple members within the networks and every such entry is immutable.
However, the governments and central banks are not satisfied because a blockchain network doesn’t offer the power to monitor or scrutinize its activities to someone who is not a member of this network. It means a blockchain network overlooks governments and central banks and their jurisdictions.
At the IMF panel discussion on April 18, Sitharaman had raised concerns about unhosted wallets where individuals own the money without the need for an intermediary such as a bank. She said the presence of so much of money in a completely unregulated environment is a risk to the global financial order and, therefore, there should be a global consensus on a framework for this industry.
“Technology doesn’t have a solution which will be acceptable to various sovereigns at the same time applicable within each of the territories. As long as the non-governmental activity of the crypto assets is through unhosted wallets, regulation is going to be very difficult,” she said.
The thinking of the Indian government seems to be that the benefits of cryptocurrencies such as ease and cost-effectiveness of international payment can be achieved by introducing a government-sponsored digital coin or Central Bank Digital Coin (CBDC). The Indian CBDC is on its way to hitting the market sometime during the current fiscal.
Both Sitharaman and Buch asserted at the NSDL event last Saturday that the Indian CBDC will not have the anonymity feature that cryptocurrencies have as one of their basic features. (IPA Service)