My Article on Crypto Currencies in Money control

Cryptocurrency a boon to digital transactions & financial inclusion

R. Kannan Cryptocurrency and its rapid valuation strides have made headlines globally. Forcing governments and regulators to take note of digital currency as an emerging asset class luring the average investor. Cryptocurrency is a digital asset created to be used as a medium of exchange -- like cash. Bitcoin, the most popular cryptocurrency has send ripples across global markets as it crossed the landmark $ 10,000 threshold. While most governments and regulators have cautioned investors against investing in Bitcoin and other cryptocurrencies, they continue to evaluate introducing their own digital currency. A group of experts at the Reserve Bank of India are examining the possibility of a fiat cryptocurrency which could be used as a digital currency. According to a few media reports the RBI’s digital currency is rumored to be called Lakshmi. Regulators across the globe including United States, Singapore, Japan and China are looking at regulatory measures to rein in the growth in cryptocurrency or digital currency.  In China cryptocurrency exchanges are shifting and improvising their business for domestic cryptocurrency traders. China allows private individuals to hold and trade bitcoin, but prohibits participation by banks and other financial institutions. Some countries explicitly permit the use of bitcoin which includes Canada and Australia. The US has adopted a positive stance in regards to Bitcoin. Meanwhile, it also has ordered several government bodies to assure that transactions in Bitcoin are carried out only in legal terms. In April, markets cheered Japan for recognizing bitcoins as legal tender and license 11 exchanges. India is on the brink of a digital revolution after the revolutionary reform –Demonitisation. Digital transactions in the country has seen an 80% jump during 2017-18, with the total amount expected to touch Rs 1,800 crore. The value of digital transactions till October this year stood at Rs 1,000 crore, which was nearly equal to that for the whole of 2016-17, according to the ministry of information technology. If the numbers are anything to go by there could be merit for the Indian government to weigh the pros and cons of floating its own digital currency to further boost digital transactions. Cryptocurrency or digital currency can revolutionize digital payments in India. Transactions through digital currency are cost effective, fast and transparent. Since, the transactions is traceable due to a public ledger it ensures transparency. Blockchain technology ensures the transactions are secure and hence the chances of frauds are minimal. Hassel free instant settlement of transactions in the age of smart phone penetration and internet connectivity has led to the increased acceptability and popularity of digital currency. Digital currency with the right regulatory environment could also help promote financial inclusion. It’s easier for individuals to open an e-wallet account than a traditional bank account given the increased mobile and data penetration. The usage of Aadhar in the country has made it easy for individuals to execute digital transactions and open e- accounts instantly. With the operationalization of payment and small banks the introduction of digital currency could change the way India banks or avails off and conducts financial services.  Regulators and governments globally are concerned that in the present form the digital currency is being used for money laundering and tax evasion. The concerns are valid considering this technology is new and its acceptance is increasing among the average investors. Considering the many advantages of this technology, Governments can no longer ignore its existence and there’s a need to frame a regulatory mechanism to monitor its usage. It’s not just individuals; corporates have also started using this technology for intra company transactions to reduce the cost of operations. Regulators and government in India need to collaborate and evaluate if this emerging asset class can be regulated by the current regulations of Know Your Customer, money laundering, foreign exchange and GST norms. Author is Head Corporate Performance Monitoring & Research, Hinduja Group Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol are their own and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.

15^th December 2017