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Introducing India's own cryptocurrency

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iasparliament
September 20, 2017
4 years
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Why in news?

The government is considering the possibility of introducing India's own cryptocurrency, code-named “Lakshmi”.

What is the need?

  • Crypto-currency is a digital currency that allows transacting parties to remain anonymous while confirming the transaction is valid.
  • The provision of anonymity is widely misused especially in making cross-border transactions.
  • They are widely used as a means for money-laundering, terror funding and drug trafficking, and other illegal activities.
  • The increasing share and presence of bitcoins due to speculative trading for return on investments is getting to be a cause of concern.

How can legalising help address this?

  • India's attempt to legalise and introduce its own cryptocurrency would give it the status of a fiat currency.
  • This formal government authorization could prove to be an alternative to popular non-fiat cryptocurrencies such as bitcoin and ethereum.
  • “Lakshmi” would adopt a variation of the blockchain technology employed by bitcoin.
  • The technology would help verify every trade and rule out the possibility of dual transactions employing the same coin.
  • Also, the new currency would be subject to the same capital account controls as the rupee, in terms of cross-border transactions.
  • The money supply at every instant is known and cannot be manipulated, unlike with normal fiat currencies.
  • Besides, users would have to submit to the usual know-your-customer norms.

What are the challenges?

  • The introduction of such a new cryptocurrency, would make it a legal tender alongside the rupee.
  • This requires legislative action of making amendments to the Currency Act.
  • Pegging it to rupee would  have an impact on the rupee exchange rate along with the risk of fluctuations.

What is the way forward?

  • India can consider legalising and regulating the existing popular bitcoin instead of introducing a new crypto-currency.
  • Ex: Japan has recognised bitcoin as a legal currency, with anti-money laundering rules and capital requirements.
  • Also, India can use GST as a tool to curb the frenzy over bitcoins by taxing their supply.
  • Capital requirements, levy of GST on supply of bitcoins and income tax on the profits made are certain to reduce the speculative effect.
  • It is for the RBI, CBDT and GST Council to discuss and formulate and roll out a  policy to deal with bitcoins effectively.

 

Source: BusinessLine

 

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