Crypto use as asset, substitute for currency a challenge, says Union Minister

Crypto technology as a means of payment is logical extension of fintech companies but challenges lie on its usage as an asset class and an alternative to currency, Minister of State for Electronics and IT Rajeev Chandrasekhar said on Thursday.

Speaking on sidelines of Fintech Festival, Chandrasekhar said the whole world is grappling with the issue of crypto and has to come to an understanding on the ways and means to address it.

"Crypto as a means of payment is logical extension of fintech but crypto as an asset class and crypto as a substitute for currency is an area with which all currencies of the world and all regulators of the world are struggling with. We will find our way with prudence, caution. We have completely clear objective as to who will do crypto in India. The government has said that RBI will do crypto the digital rupee as first measure and then we see how market evolves," Chandrasekhar said.

Finance Minister Nirmala Sitharaman has said that the RBI has expressed concerns over cryptocurrencies noting that they should be prohibited as they can have destabilising effect on the monetary and fiscal stability.

She said the RBI had registered its concern over the adverse effect of cryptocurrencies on the Indian economy.

The RBI mentioned that cryptocurrencies are not a currency because every modern currency needs to be issued by the central bank or the government, she said.

Further, she said, the value of fiat currencies is anchored by monetary policy and their status as legal tender. However, the value of cryptocurrencies rest solely on the speculations and expectations of high returns that are not well anchored, so it will have a destabilising effect on the monetary and fiscal stability of a country.

On the other hand, The Reserve Bank of India is in the process of implementing the Central Bank Digital Currency (CBDC) in a phased manner for the wholesale and retail segments.

The introduction of CBDC was announced in the Union Budget 2022-23 by Finance Minister Nirmala Sitharaman and necessary amendments to the relevant section of the RBI Act, 1934 has been made with the passage of the Finance Bill 2022, said Ajay Kumar Choudhary, Executive Director (Fintech), RBI.

The passage of the bill has enabled the RBI to conduct a pilot and subsequent issuance of the CBDC.

The CBDC is a digital or virtual currency but it is not comparable to the private virtual currencies or cryptocurrency that have mushroomed over the last decade. Private virtual currencies do not represent any person's debt or liabilities as there is no issuer.

India's official digital currency is likely to debut by early 2023, which will mirror any of the currently available private company-operated electronic wallets. The CBDC will be a sovereign-backed digital currency.