By Parush Arora
The Modi government is on its way to transforming India into a digitalised nation. Their cashless economy motto has been propelling them to ponder over new alternatives for systems of payment. In order to improve the overall online transaction experience while minimising costs, they need to go beyond the mainstream plastic money and banking instruments. One potential and unexplored alternative to this is the recently popularised form of digital currency bitcoin.
Invented in 2008, bitcoin is a cryptocurrency known for providing innocuous, easy and less expensive transactions.
As compared to the 2-3% charge over every debit/credit card transaction, bitcoins ensure that only the least amount of transaction cost is realised. India’s craze for bitcoin shot up due to the recent abolishment of large denomination notes in November 2016. Investors are now buying it at a premium price currently hovering at around 1000 USD (70,000 INR) per bitcoin.
Entering a market called India
A term fairly new and restricted to the urban hubs in India, one can easily assume that bitcoins need to travel a lot to penetrate the Indian markets and serve them at its potential.
A populace poorly prepared for e-currency like bitcoin, lining up at an ATM during demonetisation. | Photo Courtesy: MashablePurchasing a bitcoin necessitates a formal bank account, internet connection and knowledge of the functioning of such a novel instrument. In a country, where a major chunk of bank accounts are either dormant or have never invested in an instrument, bitcoins will take a considerable amount of time to reach them.
[su_pullquote]A technology driven instrument like bitcoin is also bound to face multiple interruptions unless an apposite financial base is provided for its circulation.[/su_pullquote]
Additionally, low financial and digital literacy, especially in rural areas may act as hindrances for this alternative to flourish. A technology driven instrument like bitcoin is also bound to face multiple interruptions unless an apposite financial base is provided for its circulation.
Therefore, it is imperative that India focusses on capacity building and creates a culture of easy comprehension of cryptocurrency. Visible positive developments like digital literacy and Jan Dhan Yojana showcase the government’s motive to strengthen the Indian financial system. As this process is still underway, envisioning bitcoins being actively traded is a goal for the future.
Why is RBI not playing along?
[su_pullquote align=”right”]Thus, their presence hits the core of banking endeavours and dilutes the power of the central bank over monetary control and currency circulation.[/su_pullquote]
The Reserve Bank of India has commanded a monopoly in currency generation since its inception. And of late, it has not shown a keen interest in introducing or endorsing this instrument. According to RBI regulations, prepaid payment instruments can be issued only by banking organisations. As one has to pay for bitcoins in advance, they come under these guidelines and are thus governed by the apex bank.
Currently, bitcoins are produced and traded by non-banking organisations which make it an unregulated form of currency. Moreover, this medium of exchange is not backed by any asset and its value is solely based on speculation. This makes a customer prone to greater risk as compared to fiat currency. Thus, their presence hits the core of banking endeavours and dilutes the power of the central bank over monetary control and currency circulation.
Rise of e-commerce in the wake of demonetisation. | Photo Courtesy: QuartzDespite this asymmetry, India is seeing an emerging market where bitcoins are being accepted. Unicoin, for example, has partnered with various Indian merchants to introduce a transaction mechanism using bitcoins. Companies like Fightshop, Fashiondiva and Reload too are offering an option to pay using this instrument. Zebpay, an application based bitcoin wallet allows its users to exchange their bitcoins for vouchers of Flipkart, Amazon and Book My Show. Explaining this growth while the RBI stands stern, co-founder of Zebpay Sandeep Goenka said, Unregulated does not mean it is illegal, just that there are no specific laws for this new technology.
Will bitcoin make hay while the sun shines?
Countries in the west including Australia, Canada and the United States have already legalised bitcoins. Others such as China and Japan have decided to allow it in a regulated way.
India is perceived to be the next potential place where bitcoins can be used as a medium of exchange.
It may be an over-optimistic dream to foresee bitcoins as an immediate replacement for fiat currency in India. But recent developments towards building financial infrastructure and literacy show that India’s path towards financial inclusion and expansion have already begun.