According to a new report, a panel under India’s finance ministry will soon recommend a state-backed cryptocurrency. The panel is tasked with regulating Bitcoin and other cryptocurrencies, but seems to believe that the best way to regulate this emerging market would be for the Indian state to create their own digital currency.
Quartz reported recently of discussions within the panel and broke the news. A senior government official made a subsequent comment on the newly-circulating rumors: “We are evaluating the government-backed cryptocurrency and crypto-token… and we are looking to develop and encourage our own research and development of blockchain technology,”
Why a State-Backed Currency?
Recently, India has been a mess when it comes to cryptocurrency regulations.
Just a few weeks ago, Zebpay, India’s largest cryptocurrency exchange, shut its doors due to the Reserve Bank of India’s (RBI) banking ban. The ban effectively made it impossible for banks to interact with the cryptocurrency markets, with the RBI stating that this ban applies to blockchain-related businesses and cryptocurrency markets. What this means is that it is currently close to impossible for Indian citizens to buy and sell cryptocurrencies on exchanges; it also means that crypto-based exchanges and its related companies will not be able to receive any loans from Indian banks. Both of these were a huge blow to the Indian crypto industry this year.
However, despite the stringent controls and bans, India seems to be taking an unprecedented move into making its own state-backed cryptocurrency as a means to better control and monitor the space.
Although the Reserve Bank of India has vehemently denied any unit within its ranks as exclusively working on blockchain-related research, they did mention the formation of a ‘group’ tasked to study “the feasibility to introduce a central bank digital currency (CBDC).” This was mentioned in their Annual Report 2017-2018.
However, the Reserve Bank of India has made it clear that any state-backed cryptocurrency would be equal to a single rupee. There would be no potential for speculative value involved, or so they say.
The state seems to be taking such moves quite seriously actually, despite it being shrouded in relative mystery. Last year in late 2017, the Reserve Bank of India’s executive director essentially confirmed that research was being conducted towards a fiat-based cryptocurrency’ which would be named ‘Lakshmi Coin,’ named after the Hindu goddess of wealth and prosperity.
Although India is still a developing country, it has a thriving middle class economy that has been exponentially growing in the past few years. India is hoping to position itself as one of the largest consumer economies, and is doing so by trying to migrate to what’s been called a ‘Cashless India.’
The goal of Cashless India is to “transform India into a digitally empowered society and knowledge economy” The move was an interesting one considering that overnight much of India’s fiat denominations became worthless last year as part of the plan. Everything in India is moving towards the digital — not only is this a country where before 2009 half of its citizens lacked proper documentation, but it is also a country that is quickly trying to create a new digital hub. In effect, it wishes to include all its citizens, previously undocumented, into a state-run registry and its new digital economy.
Such a goal is impressive. One can easily see how India’s plans for a state-backed cryptocurrency fits into this whole scheme: a cashless society would be better fine-tuned if its assets were tokenized and its currency made digital. This is exactly what India seems to be doing.
However, there is reason to think that India is still many years away from making this dream a reality. Although the middle class of India is quickly expanding, growth and population projections will soon position India as the largest state in the world by population: what will this mean for Cashless India? Can the current ‘digital’ infrastructure handle this influx of people?
Ultimately, one mistake the country has made so far is being so hostile to cryptocurrency-based development which has the potential to bring billions in revenue and funding to Indian-based projects. Given that the state has decided instead to create its own cryptocurrency, rather than let the crypto-market grow on its own, the future of the Indian cryptocurrency space still remains on shaky footing.