It’s not just the rapid rise in prices among cryptocurrencies that has the entire sector on everyone’s lips. Investors around the world, now increasingly including institutional investors, are looking for investment alternatives to fiat money, which in many places is believed to be facing a final devaluation spiral – and thus a collapse. What is the current situation on the Indian subcontinent?
For several weeks now, heated discussions have been taking place in India about a possible upcoming Bitcoin ban along with a possible government decree on a general ban in the area of all non-government-backed digital currencies in the country, after a first attempt at a crypto ban by the central bank in 2018 failed due to a Supreme Court ruling.
This is to pave the exclusive path to the issuance of a digital currency to be officially launched by the Reserve Bank of India (RBI). According to a senior official in the Indian Ministry of Finance, in the case of private cryptocurrencies, they are not fiat currencies backed by the RBI.
For this reason, he said, it has come to the drafting of a new bill in India to ban a use of private cryptocurrencies in all conceivable forms by means of the parliamentary bill to be passed in the subcontinent. Therefore, a swift adoption of new laws in this area is to be expected.
Such a development will apparently have a far-reaching impact on around seven million Indians who hold a cumulative amount of more than one billion US dollars in the form of private cryptocurrencies. However, details and specifics of the proposed bans have not yet leaked to the Indian public.
The question remains whether only the trading of private cryptocurrencies will be banned, or whether the ownership of private cryptocurrencies in the form of an alternative asset to existing fiat and paper currencies will also be under a total ban in the country in the future.
If ownership in this area is also tangential, the question would again arise as to whether such a decision would also be followed by a legally enforced conversion of Bitcoins and other private digital currencies into Indian rupees.
We recall that Narendra Modi’s government had already been pursuing a plan since 2016 to get cash stored under mattresses back into general circulation by means of an issue of new banknotes.
Since then, however, anyone who had difficulty proving the origin of hoarded cash (in old notes) faced the risk of confiscation of the previously hoarded cash (in old notes) or simply could not find a commercial bank willing to exchange these old bills for new ones.
However, the measures taken at that time were not crowned with great success, as the approach of the government in New Delhi, which was described as a “mini-currency reform,” met with massive resistance among large sections of the Indian population.
For years, reports have been accumulating of the potential passage of new laws aimed at banning Bitcoin and other private cryptocurrencies by governments, as governments and central banks seek to prevent private cryptocurrencies from competing with government-issued fiat and paper currencies by any means necessary.
It will therefore have to be seen in the foreseeable future how sustainable the arguments put forward by the proponents of private digital currencies are, according to which, due to the decentralized approach in the digital currency sector, a ban could only come about if the use of the Internet were also banned in the same breath.
Similar bans have occurred in the past in the gold and silver sectors. Enacted laws, for example, made it impossible to use gold and silver coins for the purpose of economic payment transactions, although government mints continued to mint and sell gold and silver coins at the same time.
From the point of view of Bitcoin and other private digital currencies, or digital-based currencies in general, anyway, these currencies are inaccessible and their trading is not possible in the event of Internet outages and/or power outages.
The current events in the frozen state of Texas shed light on this thesis, just as this has recently been the case from the perspective of Myanmar or Uganda, where internet traffic was almost completely shut down to zero by government order due to elections to be held or political turmoil.
However, these existing risks have not stopped bitcoin markets from climbing to new record highs, with the $53,000 per unit mark recently being cracked.
With regard to gold, for example, it can be said that passed laws in this area have prevented gold coins from being circulated for payment purposes in a state-controlled economy after a certain point. It should be noted at this point that, for whatever reason, this situation now seems to be turning around and reversing in a number of American states.
Previously existing laws established that the value of a gold coin in the general economy was limited not to its market price, but to its exponentially lower face value.
At the prices currently offered by most precious metals dealers, it costs about $1,995 to purchase a one-ounce gold coin at the spot price, taking into account physical price premiums. In the case of Goldeagle coins, precious metals dealers and/or other lenders in the U.S. are prohibited from lending more than the $50 face value of a Goldeagle coin in the form of a loan.
In other nations, where gold can be loaned at fair market value rather than at face value, legislation provides for different rules. Back to the current situation in India. Of concern is the fact that the subcontinent is under the control of the central bank, as recent events have shown.
Among other things, this includes the creation of a digital information database for almost all of India’s 1.3 billion citizens. To this end, not only fingerprints but also retina scans have been collected to uniquely identify citizens.
This was followed in 2016 by Narendra Modi’s aforementioned decree that had banned the use of nearly 86 percent of all those rupee banknotes in circulation at the time. It is likely that this decree contributed to the demise of thousands of people, as the ability of the poorer sections of the population to purchase food was massively curtailed at that time.
During those times, India’s then finance minister, P. Chidambaram, was vociferous in his criticism of Modi’s unilateral decrees. The decrees in question were preceded by an attempt (so far) to fully digitize the domestic economy, which has failed simply because millions of Indians still do not have access to services in the digital sphere.
P. Chidabaram lamented at the time that Modi’s reckless approach would cost thousands of Indian lives through starvation. Modi’s critics also insist that the government is pursuing a gold demonetization plan in an attempt to allow the RBI to confiscate and seize physical gold from citizens in the future.
In exchange for this gold, gold holders are then to receive worthless fiat paper money with measly annual interest rates. It gives the impression that the mass media are ready to support campaigns of this kind on the subcontinent. When it comes to gold and silver, however, friendship ends from the Indian point of view, as even many small savers hold their assets in the traditional way in the form of gold and silver to escape paper money devaluations.
In conclusion, the apparent impending ban on Bitcoin and other cryptocurrencies in India can be described as worrisome. The subcontinent has proven to be a testing ground for global experiments and initiatives many times in the past.
This includes, for example, the rapid transformation of a nation that international credit card provider Mastercard once described as one of the most ill-prepared for a digital economy. Not much later, some 95 percent of the country’s then 1.1 billion inhabitants were assigned a unique digital identification number, which was based on retinal scans in addition to a submission of fingerprints, and which can be used to benefit transactions in a digital economy.
At the current time, the volume of Bitcoin trading observed in India is the equivalent of $5.5 billion. A new Bitcoin tax proposes to tax 18 percent of the profits generated in this trade before enforcing a total ban.
Furthermore, should the Indians be deprived of the opportunity to be active in the private cryptocurrency sector in the future, from their point of view, a shift of activities abroad would be an option and/or the domestic focus would alternatively turn to the gold and silver markets even more than ever before.
Be that as it may, as current developments on Wall Street show, a cat-and-mouse game and race for future dominance in the digital cryptocurrency space is taking place between private investors, banks and institutional investors on the one hand and central banks and governments on the other.
It will be interesting to see who will come out on top in the end and how this race will end, although it should be noted that governments can always use the big stick of a ban, as the example of India shows. However, such bans will then again only be a reason to look for ways in which such measures can be circumvented in the future…