Cryptocurrencies Should Be Banned, Says Former Indian Gov’t Official

News, Regulation | March 13, 2018 By:

Shaktikanta Das, former Secretary of Economic Affairs of India, said that cryptocurrencies should be banned since regulating them would be a tough task.

In an interview with Quartz India, Das, who is currently a member of the 15th Finance Commission, said that there is no way to regulate cryptocurrencies “effectively,” and that is why India would be better off prohibiting them altogether.

“Let us accept that it would not be possible to regulate it effectively,” he explained. “Because they will do transactions from their houses. You cannot enter every home to check what transactions are going on. So, I think this is a serious challenge, and this should not be allowed at all.”

Das said the main problem with cryptocurrencies is that they are not backed by any assets. “Currencies have the guarantee of the RBI, on behalf of the sovereign,” he said. “That is the underlying guarantee for that. Share of a company—you have an underlying asset of the company. In cryptocurrencies, what is the asset base? It is created out of vacuum, it is created out of thin air.”

He argued that RBI is the only body that is legally allowed to issue currency in India, hence cryptocurrencies are illegal.

“This (virtual money) is a parallel currency system developing and it is not legal,” he said. There is no legal provision which backs up these transactions. There is the danger of cryptocurrencies leading to money laundering, terror financing, and unaccounted transactions. It will pose a serious threat to the financial stability not only of India, and in fact more, in the case of the developed world. It’s a serious challenge and threat to global financial stability.”

In his Budget speech last month, Finance Minsiter Arun Jaitley said that the government does not recognize cryptocurrency as legal tender or coin, and will take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payment system.

Some local experts, however, believe that a blanket ban on cryptocurrency would only bring more problems. Anirudh Rastogi, managing partner at New Delhi-based law firm TRA, said it may not be practical for India to write off cryptocurrencies completely.

“That would work very well if the global financial community was moving that way, but since it is not, and, if you want to be an outlier in that regard, it is going to have an adverse impact on your [India’s] financial system,” Rastogi said. “If two or three of the largest economies are giving it legitimacy, one needs to take a hard look at it before you take a drastic step.”

He added that measures to curb cryptocurrencies would make tracking crypto transactions even harder for the government.

“You will just drive these transactions from otherwise compliant exchanges, which keep records, and basically drive them underground, making it very difficult to keep track of transactions,” Rastogi said. “It would be very difficult to enforce a ban, and that is one of the reasons why various jurisdictions have kept away…but have rather regulated cryptocurrencies.”