Investors look at opportunities as the country’s central bank mulls its own digital currency plans. But it could be done gradually to mitigate any disruption to the existing financial system.
India’s views on digital currencies seems to have come full circle in the past three years, while carefully navigating the prospect of launching its own central bank-backed coin.
From the Reserve Bank of India’s move to prohibit regulated entities from providing services to anyone who deals with or settles trades in any virtual currency in 2018 – effectively banning Bitcoin trading in the country – to the central bank’s hint earlier this year that it is planning to launch its own cryptocurrency, it’s been quite a whirlwind journey as far as digital currencies are concerned.
The RBI said last month it was planning to launch its own digital coin, but it would be done gradually to mitigate any disruption to the existing financial system.
The benefits of moving to cryptocurrencies are immense and immediate. They not only bring down the transaction cost drastically, but also help faster digital adoption and create new employment opportunities. Several online exchanges that facilitate digital currencies have sprung up – like WazirX, CoinDCX, CoinSwitch Kuber and so on, employing hundreds of tech-savvy and finance-literate people.
READ MORE ON INDIA & DIGITAL:
Yet, almost all cryptocurrency coins available today are privately held and subject to unprecedented market volatility – factors which any government would be wary of.
Bitcoin, created in 2009, remains the most popular of all cryptocurrencies available today and is also the largest by market capitalisation. Still, the sector is far behind fiat currency in terms of the user base – and therefore it’s a fallacy to expect that virtual currencies will overtake the traditional system anytime soon.
The sector has yet to evolve into a robust mechanism that would make it the backbone of any government-backed payment system, although the potential is massive.
“Just like you have some of your assets in gold or real estate, you can have some of your assets in crypto,” said Nandan Nilekani, the chairman of Infosys. “I think there’s a role for crypto as a stored value but certainly not in a transactional sense,” he told Financial Times in an interview.
Infosys has enthusiastically adopted the blockchain technology underpinning cryptocurrencies as it looks to offer a growing range of digital tools to its multinational clients. According to Nilekani, permitting individuals and businesses in India to tap the $1.5 trillion digital currency market would allow “the crypto guys to put their wealth into India’s economy”.
According to a survey by Bloomberg, bitcoin might become for India’s millennials what gold is for their parents. Earlier this year, Coinbase announced it was planning to establish its presence in India. Another powerhouse, Binance, has been there since 2019 when it acquired India’s largest crypto exchange, WazirX.
“India is one of the youngest countries in the world, and these 28- to 29-year-olds are people who want to be a part of the revolution,” said Indian crypto advocate and YouTube influencer Kashif Raza.
India also has the second-largest online population after China, with over half a billion users taking advantage of the cheapest internet in the world. According to the BBC, one gigabyte of mobile data costs $0.26 in India, compared with $12.37 in the US and a global average of $8.53. That makes India a country with the potential to become “one of the largest crypto economies in the world,” said Mohammed Roshan, former chief scientist at the Unocoin exchange and now the CEO of GoSats, an app allowing people earn bitcoin rewards while shopping online.
READ MORE ON INDIA & FINANCIAL SERVICES:
But this massive potential must also be weighed against the cautionary advice from RBI, which noted in its policy paper earlier this year: “The advent of private virtual currencies (VCs) may well be another reason why CBDCs might become necessary. It is not clear what specific need is met by these private VCs that official money cannot meet as efficiently, but that may in itself not come in the way of their adoption. If these VCs gain recognition, national currencies with limited convertibility are likely to come under threat.”
So even if Bitcoin and Dogecoin never emerge as potential candidates to replace the Rupee as an actual medium of exchange in the near future, wait-and-watch would be the buzzword for stakeholders and crypto enthusiasts in India for the time being.