With a bill introduced last week, India seems to be joining the bandwagon of a number of countries taking a tough stance on privately owned cryptocurrencies. The new law will be one of the strictest in the world as it will completely ban, mining, issuance, trading and even the mere possession and transferring of crypto-assets. Not even China bans possession of cryptocurrencies. A report by the Beijing Arbitration Commission (BAC) a local non-profit arbitration organization says that “the (Chinese) state does not prohibit Bitcoin’s activities as virtual commodities, except for the activities that Bitcoin is engaged in as legal tender.”
This bill is a follow up on the Indian government’s plan earlier this year to phase out private virtual currencies, most notably Bitcoin and Ethereum. Instead, the nation plans to build a framework for its own Central bank digital currency (CBDC).
Once the bill is passed, current holders of cryptocurrencies will have only six months to liquidate their assets after which anyone in possession of such will incur heavy penalties. Also, while the contents of the bill are still yet to be confirmed, there is the possibility of jail for those found in possession or engaged in any activity related to private digital currencies. In 2019, a government panel recommended a jail term of up to 10 years for such persons.
Safety or Greed?
While Bitcoin may be growing steadily to highs of more than $57000 at the time of this writing, more countries, not only India, are growing wary of Bitcoin and the whole digital currency framework. Indeed, Bitcoin has no shortage of critics; Dallas Mavericks’ billionaire owner Mark Cuban for instance, referred to Bitcoin as a collectible with no real value . New York University’s Stern School of Business Nourel Roubini said that bitcoin was destined to end up in the “museum of failed coins,” along with other failed digital currencies.
While most people may view these statements as a somewhat overly sceptic view of private digital currencies, they do raise important questions. Are private digital currencies a true store of value? And more importantly is it safe to possess, trade and invest in digital assets given their volatility and lack of centralised control?
These questions and more specifically the last one is the main reason India and more countries are shying away from Bitcoin and instead building their own digital currencies. Private digital currencies are a challenge to the established order of centralised control of the flow of money by Central Banks. Transactions cannot be tracked and the owners remain anonymous. This means that taxation is made almost impossible while also making crime activities easier.
Making a Case for Central Bank Digital Currencies (CBDCs)
However, to the credit of these crypto shy governments, they are not throwing the baby out with the bathwater. While they may be sceptical about digital assets they do recognise the power of its technology, specifically blockchain. And now they intend to harness it to their advantage by creating their own relatively centralised ‘Central Bank Digital Currencies.’
Pioneered by China, CBDCs are being adopted by governments all over the globe. Today more than six countries already have operational digital currencies. They will soon be joined by countries such as Russia, Estonia, Japan, Palestine and Sweden who all plan to launch their own digital currencies in the next five years or so. Are CBDCs the future of digital currencies? Only time will tell.