Cryptocurrencies and India
Progression of mankind necessitated the exchange of goods and services leading to the evolution of money from the ancient stones and shells to coins and eventually to the present fiat currency. Money has evolved with the evolution of societies and trade. In modern economies, central banks are in charge of the money supply in the economy. The evolution of fiat money as well as the credit extended by the banking system, in the broader definition of money, is regulated and supervised by the central bank. The settlement is done by the payment system that maintains people's trust by using computerized bank ledgers, which are also generally under the supervision of the central bank. This ledger system, coupled with the internet revolution has facilitated the evolution of cryptocurrencies. Cryptocurrency does not have a physical form nor is it backed or issued by the apex bank. Cryptocurrencies have quantity limitations and are highly volatile as they are based on market sentiments of demand and supply. They can be mined in any country by any person and investment can be made by any investor from anywhere in the world.
Cryptocurrency is a matter of grave concern among policymakers and central bankers as there are several risks involved which can threaten the financial stability of the economy and national security of the nation (IMF, 2018). In the highly integrated world, spill-overs from any single nation can have serious consequences on the global economy. In a fragile economic environment where Covid–19 has added immense uncertainty in the growth path, any fresh experiments with the financial system needs to be carefully evaluated, especially non-official virtual currencies which can be used to defraud consumers, particularly unsophisticated consumers or investors. Another concern from use of non-official digital currencies is related to their volatility and crippling use of energy (Adrian and Rhoda, 2021).
This brief article expounds briefly on various issues ranging from evolution of money to the beginning of cryptocurrencies, followed by the current scenario in India and the world. And then offers a few recommendations.
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