Digital future of money needs more clarity
Senior Journalist
An entrepreneur friend has observed that cryptocurrency is not an urgent challenge of the Indian economy and there are other pressing issues like getting the economy going so that small businessmen like him would be able to breathe easy. Though what he says makes a lot of sense, the Union government’s compulsive inclination to try out new things indicates that cryptocurrencies are very much on the mind of policy-makers led by Prime Minister Narendra Modi himself. Speaking at the Sydney Dialogue last month, he talked of the danger of cryptocurrencies falling into the wrong hands. And Modi’s vision of India’s future is rooted in the digital universe. So, cryptocurrencies are of great interest to this government, though most developed countries and advanced economies are yet to take note of it. That is why the Cryptocurrency and Regulation of Official Digital Currency Bill 2021, with the teasing sobriquet of Crypto Bill, is on the anvil in the ongoing Winter Session of Parliament.
A clearer indication of the government’s view on cryptocurrencies is to be found in the recommendations of the Subhash Chandra Garg Committee on the subject, and its recommendation that the Reserve Bank of India (RBI) should issue digital currency, and that private cryptocurrencies should be banned. So, India’s policy-makers and decision-makers are willing to take the plunge into digital currency. Even when the decision on demonetisation was taken, the PM was toying with the idea of doing away with cash transactions. The secondary argument for demonetisation was that cash has become cumbersome and it has become costly as well, following American economist Ken Rogoff’s arguments. Of course, Rogoff’s position on cash was not acknowledged by the government. It was soon realised that cash could not be dispensed with in a jiffy. The decision on demonetisation was then modified to that of less cash and more of digital payments.
At a seminar in New Delhi a few years ago, former RBI Deputy Governor Usha Thorat had explained the ideological underpinnings of bitcoin. “Bitcoin was started by those who did not believe in any authority. They wanted to do it by mutual consent to create liquidity.” In more ways than one, it is an anarchist movement in the world of money, where the central bank is the sole authority in issuing legal currency and in managing it, and the cryptocurrency creators are keen to set up a parallel money universe. The Indian government wants to grab the opportunity and create a digital currency.
Paper money has gained stability because it has been tethered to the gold standard. But in times of economic crisis as during the Great Depression of 1929 and again in early 1970s, money had to get off the gold standard. But the money currencies floated and found their value against the strongest currency, which turned out to be the American dollar. Cryptocurrencies may not follow the trajectory of paper money, gold standard and strong currency among the currencies. Cryptocurrencies would not be divided in terms of national currency. They will be transnational currencies much like the transnational corporations. For the cryptocurrency to gain currency, it will have to command the trust of its users, and this in turn will be based on its economic viability. Venezuela, in 2018, experimented with a cryptocurrency version called ‘petro’, where a barrel of oil was used as the unit of value. This was done to beat the United States’economic sanctions against the country. Russia and Turkey too were tempted to experiment with cryptocurrency as well.
Former RBI Governor D Subba Rao and member of RBI’s Money Policy Committee (MPC) Ashima Goyal have favoured recognising cryptocurrencies as an asset which can be traded but not as a currency. Thorat has asserted that private cryptocurrencies must be banned. But it seems that the government would want to create a form of digital currency, partly to outwit cryptocurrencies and partly to take/replace money as we know it. This is going to be neither an easy nor a quick transition. PM Modi would want his government to be in the frontline of this aspect of the digital revolution.
It is possible to argue that when paper money came into existence, the same apprehensions were expressed as now being expressed at the prospect of cryptocurrency. And that if many of the things in society are going to turn digital, including governance, then it would be difficult to resist the emergence of digital currency. The initial move towards cryptocurrencies was to move away from the authority of the State and the control of the central bank, but the authoritarian State would want to conquer the no-man digital space from the currency anarchists and establish its own authority. But as there is black money, there is going to be black digital currency as well, where the blockchain technology could be used to mimic the central bank’s certified digital currency. The central banks then will have to create their own digital defence to ward off the raids from the freebooters, as it were.
As the Internet envelops the world and human activities, and Mark Zuckerberg’s Metaverse will spread its territory, many of us would have to consider whether there would be an option for individuals and communities, if not nations, to opt out of the corporatised systems under construction in the digital world. The State will be one of the many competitors in this technology universe, though it would want to assert its total authority as a sovereign power. There is a need for a debate on whether the opening of the Internet world increases our choices or restricts them. If it offers greater choices than before, then those of us who want to skirt the systems of the State and the corporations should have the freedom to keep the behemoths at bay.
