The Indian government must not permanently ban cryptocurrency (also referred to as 'token' or 'coin' or 'digital currency'). Any permanent ban on cryptocurrency would only reflect a lack of understanding of the positive impact the technologically powerful cryptocurrency can create on the Indian economy. Many governments have expressed fear over tokens as there is no central authority to regulate the value or oversee the exchange of tokens. The fear stems from an inability to regulate the crypto market or monitor the valuation or track the transfer of cryptocurrency. With fiat currency, governments can do all of the above. Most central banks world over, in conjunction with their respective governments, pass monetary policies each year. The goal of the monetary policies is to specifically control the global value of money. The government through its monetary policies regulates employment, spending, investments and inter alia controls investment. The Indian government can mitigate the above threat by issuing Central Bank Digital Currency ("CBDC"). CBDC shall be backed and controlled by the RBI. CBDC would have legitimacy and would encourage the public to purchase/trade. It would have the ability to become mainstream (as it is backed by the Central Bank) and help to push India towards a cashless society.
CBDC can help a significant population group to access the financial system without access to the banking system. Further, if CBDC became popular, the government could adopt it as a mechanism to monitor payments to public officials.
Many nations such as China, Sweden, Canada, Switzerland, and Singapore are engaged in developing a pilot of their own CBDC. CBDC can help develop the digital economy and provide for more financial stability once it has the full backing of the government. Moreover, there may be more trust in the financial systems as there shall be less volatility while conducting transactions through CBDC. A CBDC shall also help reduce the shadow trading or the black cryptocurrency markets and the RBI shall be able to control cash supply more effectively. A CBDC shall provide effective competition to private cryptocurrencies such as Libra. Moreover, money laundering issues can be solved if there is a central backing to a digital or crypto rupee. Concerns regarding the security in dealing with cryptocurrencies can be suitably dealt with. Cryptocurrency is backed by blockchain technology protocols, which means that every transaction is recorded as a part of Distributed Ledger Technology ("DLT"). DLT simply means that the transaction shall be validated by several computer networks before the transaction is recorded on the DLT. DLT is known to be a foolproof technology and an individual's cryptocurrency wallet cannot be hacked like a traditional online wallet. If the Indian government were to release CBDC, such cryptocurrency could bear two layers of protection – with one layer through the DLT technology and another through its own centralised system.
The development of cryptocurrency business i.e. Initial Coin Offerings ("ICOs"), Security Token Offerings ("STOs"), cryptocurrency exchanges, the exchange of cryptocurrency for goods and services, and the creation of CBDC would collectively help in building blockchain technology platforms which can have a variety of use cases in other fields. For example, transfer of land, when migrated to a DLT platform, would create transparency on all land transfers and potentially reduce litigation on matters concerning illegal land grabbing. Most importantly, it would eliminate all forms of manipulation of land-related documentation, as the transactions are recorded on DLT. Moreover, land and real estate tokenisation will increase liquidity as the value and ownership can be digitised and put into fractional tokens to be distributed around the globe. This gives investors the right to own a portion of real estate, thereby increasing liquidity of the underlying asset. This ultimately could open yet another avenue to draw in foreign direct investment in real estate.