After strangling bitcoin, India may launch its own cryptocurrency

After blowing hot and cold on bitcoin, the Indian government is considering bringing out its own cryptocurrency.

A panel constituted by India’s finance ministry might soon recommend that the country launch a government-backed cryptocurrency.

“We are evaluating the government-backed cryptocurrency and crypto-token,” said a senior government official privy to the discussions of the panel. “And we are looking to develop and encourage our own research and development of blockchain technology,” the official added, referring to the digital infrastructure on which cryptocurrencies are based.

The finance ministry panel was set up in December 2017 under Subhash Chandra Garg, secretary, department of economic affairs, to suggest measures to regulate cryptocurrencies. The panel was supposed to submit its report by July, which was later pushed to the end of the year. An email sent to the finance ministry seeking confirmation remain unanswered.

Its plan, however, seems to be in tandem with the Reserve Bank of India’s (RBI) proposal made earlier. The central bank has constituted a multi-department panel of its own and has been studying the feasibility of launching government-backed digital coins.

In the meantime, the government and the RBI have been moving to curtail cryptocurrency exchanges for a while now.
What led to this?

Even in its previous meetings with bitcoin exchanges, government representatives were trying to understand how a government-backed digital currency would work, said a person from the cryptocurrency community privy to the details of the meetings.

“If a virtual currency is going to be backed by the government then it goes against the whole grain of such coins,” said the executive, requesting anonymity. “These are essentially decentralised ledgers, and if the government or the RBI is trying to control it, then it loses its meaning.”

What’s worse is that the government may also kill or ban the existence of other digital currencies if a government-backed cryptocurrency is rolled out.

“The panel is also discussing amendment of the Currency Act to make possession of any cryptocurrency, not approved by the government, a punishable offence,” said the government official.

This comes after the RBI has already come down heavily on bitcoin and its ilk almost choking the ecosystem. Since July, the central bank has barred banks from maintaining any business relationship with cryptocurrency exchanges and traders, including maintaining savings bank accounts.

Not surprisingly, trading is hit.

For instance, from its peak when bourses were adding up to 300,000 new customers a month nearly a year ago, additions have now reduced to merely 1,500-3,000, cryptocurrency exchanges told Quartz. Since April, the exchanges have engaged in a legal battleagainst the RBI in different high courts and the case reached the supreme court in May this year. However, there are no signs of an end to it.

The situation is so grim that Zebpay, one of India’s largest cryptocurrency exchanges, shuttered last month.

Like the RBI, even the government is not comfortable with virtual currencies, even though it wants to push the blockchain technology, a digitised and decentralised public ledger for cryptocurrency transactions. The government has also expressed concerns that these currencies may be used to launder money or dupe gullible investors. Therefore, it is seeking control.

However, the idea of a digital currency backed by the government is not new in itself.
Going the Petro way?

Venezuela, the world’s second-largest crude oil producer, launched Petro, the world’s first government-backed digital currency, earlier this year. The Venezuelan government owns and controls this cryptocurrency, the price of which is equivalent to a barrel of oil.

Even Iran is looking to launch its own virtual currency.

The RBI has reportedly planned to tentatively name its digital currency Lakshmi, after the Hindu goddess of wealth. “This will be in addition to the paper currency that we have. It also holds the promise of reducing the cost of printing of notes,” RBI deputy governor BP Kanungo, said at a conference in April.