Monetary Policy Committee Notifications

Crypto is not currency, must regulate it as asset: Former RBI DG


From UPSC perspective, the following things are important :

Prelims level: Cryptocurrencies and Legal Tender Currency

Mains level: Issues with Cryptocurrencies

Former RBI Deputy Governor R. Gandhi made a case for treating and regulating crypto as a separate asset class with a view to enabling governments around the world to effectively deal with illegal activities associated with virtual currencies.

Why in news?

  • After quite a lot of debate over the years, people have fully understood that crypto cannot be a currency because the fundamental element of a currency that it should be a legal tender is missing in this case.
  • The general consensus among many policymakers is that it should be deemed as an asset, not as a currency, not as a payment instrument, and not as a financial instrument as there is no clear identified issuer.

What are Cryptocurrencies?

  • A cryptocurrency is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of a computerized database.
  • It uses strong cryptography to secure transaction records, control the creation of additional coins, and verify the transfer of coin ownership.
  • It typically does not exist in physical form (like paper money) and is typically not issued by a central authority.
  • Cryptocurrencies typically use decentralized control as opposed to centralized digital currency and central banking systems.

How does it work?

  • Cryptocurrencies work using a technology called the blockchain.
  • Blockchain is a decentralized technology spread across many computers that manage and record transactions.

What is Blockchain Technology?

  • Simply, blockchain is a decentralized, distributed, and public digital ledger.
  • Blockchains are a new type of network infrastructure (a way to organize how information and value move around on the internet) that creates ‘trust’ in networks by introducing distributed verifiability, auditability, and consensus.
  • Blockchains create trust by acting as a shared database, distributed across vast peer-to-peer networks that have no single point of failure and no single source of truth.
  • No individual entity can own a blockchain network, and no single entity can modify the data stored on it unilaterally without the consensus of its peers.

Also read

Cryptocurrency and Regulation of Official Digital Currency Bill, 2021

Back2Basics: Legal Tender Money

  • A legal tender is a coin or a banknote that is legally tenderable for discharge of debt or obligation.
  • Coin of any denomination not lower than one rupee shall be legal tender for any sum not exceeding one thousand rupees.
  • Fifty paise (a half rupee) coins shall be legal tender for any sum not exceeding ten rupees.
  • While anyone cannot be forced to accept coins beyond the limits mentioned above, voluntarily accepting coins for amounts exceeding the limits mentioned above is not prohibited.
  • Every banknote issued by the Reserve Bank of India unless withdrawn from circulation shall be legal tender at any place in India.
  • ₹1 notes issued by the Government of India are also Legal Tender.

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