By Elton Gomes
A finance ministry panel might soon propose a government-backed cryptocurrency.
We are evaluating the government-backed cryptocurrency and crypto-token, a senior government official who was familiar with the decisions of the panel told Quartz. And we are looking to develop and encourage our own research and development of blockchain technology, the official added.
Will a government-backed cryptocurrency work?
In its previous meetings with bitcoin exchanges, government representatives were trying to understand how a government-backed cryptocurrency would actually work, said a person from the cryptocurrency community who was 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, the executive said on the condition of anonymity, Quartz reported. These are essentially decentralised ledgers, and if the government or the RBI is trying to control it, then it loses its meaning.
Furthermore, if a government-backed cryptocurrency is eventually rolled out, the government will have full control to kill or ban the existence of other digital currencies.
Government forms panel to regulate cryptocurrencies
In December 2017, the finance ministry formed a panel to come with a response on the Bitcoin issue. The Economic Times reported that the panel comprised RBI deputy governor B.P. Kanungo and Sebi Chairman Ajay Tyagi.
A month later, in January 2018, the Central government then wanted a law to regulate the trade of cryptocurrencies such as Bitcoin in India. The government formed a committee in this regard.
There are two main concerns that the law on cryptocurrency will address: the source of money being used to trade in them; and regulation of exchanges of VC to protect the common man, a government official knowledgeable of the matter told the Hindustan Times.
The official further said, We understand the interest in Bitcoin, its value went up from a few hundred dollars some years back to about Rs 10 lakh now. But we need to ensure clean money is being used to buy VC.
RBI bans banks from trading in cryptocurrencies
In July 2018, the Reserve Bank of India (RBI) issued a directive urging all regulated entities, including banks, to stop dealing with individuals and businesses dabbling in virtual currencies. This meant that banks were disallowed from dealing with companies or individuals that trade in cryptocurrencies.
“Virtual Currencies (VCs), also variously referred to as cryptocurrencies and crypto assets, raise concerns of consumer protection, market integrity and money laundering, among others… In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs,” the RBI said in a statement, according to Business Today.
Which other governments have backed cryptocurrencies
If India finalizes on a government-backed cryptocurrency, it could follow the steps of Venezuela and Iran.
Venezuela, the worlds second-largest crude oil producer, launched Petro early in 2018. The virtual currency was the worlds first government-backed digital currency. The Venezuelan government owns and controls Petro, the price of which is equivalent to a barrel of oil.
In July, Iran said it is moving ahead with a plan to introduce a national cryptocurrency. The Iranian government said, in April, that it had developed an experimental domestic cryptocurrency.
Iran’s decision comes after the US pulled out of the Iran nuclear deal and imposed more sanctions. Irans state-sponsored Press TV reported that the plan to create an indigenous cryptocurrency was moving forward, and the country’s central bank was working with domestic knowledge-based companies to develop the digital currency.
Elton Gomes is a staff writer at Qrius