India needs one country, one regulator system for currency
The question is how a dedicated Indian cryptocurrency would help India in the long run.
Most of us are familiar with the OROP agitation, when retired personnel from all three branches of our armed forces wanted pensions to be normalised across all retired staff irrespective of year of retirement. In the summer of 2013, while attending a patriotic tweeples’ conference, i.e., a conference of patriotic Indians who were then hyperactive on Twitter, I ran into C.A. Padmanaban (CAP), who was interacting with Prof R. Vaidyanathan after the professor had delivered his state of the economy lecture. The audience demographic of this conference was 22-35-year-old English speaking early career professional from Tier 1 and 2 cities of India. In stark contrast, CAP was 90+, having retired as a General Manager of Indian Railways. Although he did not have a Twitter handle, he did give out his email address incase someone wanted to reach out to him. The meeting pointed to the importance of currency markets in a growing economy and the regulations needed to make these healthy.
When the first bitcoin exchange was launched in India, it was promptly shutdown for FERA violations. Until the last few budgets, the legal standing of crypto exchanges in India was (and still is) very ambiguous. The Indian Rupee (INR) was launched in 1950. Hyderabad State Bank had launched the Osmania Sicca (OS) in 1918 and Hyderabad was the only Indian princely state which was permitted to continue issuing its own notes. OS co-existed with INR until 1959. So there is legal precedence of India allowing multiple currencies. The Indian Constitution does not dictate that India will only have a single currency.
China currently has three currencies—yuan (CNY), CNH, in addition to the domestically used Renminbi (RMB). The offshore version of Renminbi is CNH, whilst the onshore Mainland China market uses CNY. Although Renminbi and Yuan can be used interchangeably, technically, Yuan is a unit of the Renminbi currency.
Satoshi Nakamoto had proposed the concept of Bitcoin in a 2007 paper titled “Bitcoin: A Peerto-peer Electronic Cash System”. He is supposed to have mined the first 1 million bitcoins which is worth approximately $56 billion today. Bitcoin is based on the blockchain, digital ledger technology (DLT). The primary reason for Bitcoin’s success stems from DLT’S power of enforcing trust between two hostile parties.
Hence it is currently the number one currency used on the dark web for international human trafficking, illegal arms deals with terrorists, etcetera. In India, the purpose of the regulator, RBI in India’s case, is to give the Indian masses and the world at large an assurance that India is a financially stable country with a strong domestic currency. Since the Gold Standard was discontinued, every Indian rupee note with the exception of the one rupee note has the declaration by the RBI Governor “I Promise to pay the bearer sum of 100 Rupees”. India, relative to its size, is already at the cutting edge of digital banking as a result of de-monetisation, the UPI infrastructure and government schemes like the Jan Dhan Yojna, which plugged major leakages in disbursement of government grants. The question is whether and if so, how a dedicated Indian cryptocurrency would help India in the long run.
An answer needs to be found and operationalised to ensure India a leader and not a laggard in this digital age. PM Modi has shown the way in what changes are needed in his vision of Digital India. “Sabka broadband access” may be the new motto.
A question was: which agency would regulate a crypto exchange? If it has to support forex transactions, that is under RBI’S purview, but it is also an exchange which is under SEBI’S
purview. This question is still unanswered. Ideally, the answer should be a single unified financial sector regulator rather than a band aid solution of overlapping jurisdiction between the two, as is the case now. If we had a single regulator, we could potentially extend the same concept to investigating agencies. Currently a financial crime can be under the purview of the home department— State Police, EOW, ED, CBI, FIU and NIA. Why not simplify the system and have one umbrella agency which can have sweeping investigative powers across all laws surrounding financial crimes?
Even though INR is declared as an NDF (Non Deliverable Forward) currency, INR vs USD and other currency rates are dictated by market sentiments. This differs from
China, which strictly controls its exchange rates. China wants to globally portray a free market economy, while internally seeking strict control over players. For example, the recent crackdown on Alibaba’s Ant group’s IPO, which was pulled back at the 11th hour. This economic model is consistent with their hybrid democratic socialist political system.
India already has to walk the tightrope in case of exchange rates. It needs to think about balance of payments, deficit vs percentage of GDP, foreign exchange reserves, etcetera. A depreciating rupee makes exports like IT services unprofitable, which in the last 20 years have primarily survived due to labour arbitrage rather than innovation.
An appreciating rupee impacts imports like oil and gold, where domestic consumption is higher than what we can internally mine.
For long term financial security along with bolstering our foreign exchange reserves and striving to appreciate the value of the INR versus the US dollar, India needs to make foundational changes to continue, encouraging the younger generation to seek out public service roles, whether it is in the armed forces, the administrative services or even state owned public institutions. In addition to our retired Army personnel, ex President and rocket scientist A.P.J. Abdul Kalam or the women scientists part of the Mangalyan mission team, India needs more C.A. Padmanabans as role models for Indian school students, rather than just unicorn co-founders.