The government appears to be eager to ban private cryptocurrencies, although such a prohibition is unlikely to be effective. Perhaps our best option will be to assist a digital rupee in establishing a foothold in a competitive market.

India's government has a complicated relationship with currency, as seen by its mistaken attempt five years ago to stamp out ill-gotten wealth and illicit behaviour through a note ban. Now, as the threat of a ban on private cryptocurrencies grows, may we be in for another upheaval that falls short of its intended outcome? It listed the Cryptocurrency and Regulation of Official Digital Currency Bill for enactment during this winter session of Parliament on Tuesday.

As stated, it will "prohibit all private cryptocurrencies" but will allow exceptions "to advance the underlying technology." Additionally, it will offer a framework for the RBI to develop a digital currency. While its ultimate shape may elicit relief from India's cryptosphere, which has a lot at stake, it appears for the time being that the Centre is prepared to crack down hard on blockchain-based coins.

While trading platforms and similar entities face a grim future, the same is not true for cryptos. As the name implies, they can continue to thrive in the absence of enforcement.

Money is fungible, and their global popularity has conferred fungibility on crypto assets. As previously said, it was demonetisation that brought Bitcoin into social discourse, with stories of modest fortunes being locked away for exclusive access via secret codes.

While purchases made on open platforms can be tracked, the internet's global reach allows owners to use or encash their chips in privacy. Due to the fact that tokens issued outside our jurisdiction cannot be deleted, prohibiting them is likely to harm legitimate cryptocurrency firms but will ultimately prove useless.

Worse, if they quit our formal economy, we may well be unaware of their influence on numerous economic policy inputs. Regarding 'exceptions' to permit blockchain-based value generation, while this sounds like a reasonable concession, it may be difficult to achieve the necessary technical distinctions to allow us to monitor the industry in a non-arbitrary manner. Thus, a complete prohibition may wind up being another case of overkill.

Apart from the possibility of abuse, a compelling argument against cryptos is the weakening of our monetary sovereignty that broad acceptance of stablecoins could theoretically entail in the future. As these tokens are backed by normal money, they risk eroding the rupee's role and reducing the RBI's ability to manage macroeconomic policy.

This is a significant danger that requires mitigation. Given the ineffectiveness of a crypto ban as a defence of our fiat currency, our best hope would probably be to allow such stablecoins to proliferate, ensuring that no single token achieves market dominance due to severe market competition.

With divided forces to fight with, an RBI-issued digital rupee could be positioned as 'the genuine article' for online use. Official support would give it an unmatched advantage.

If it is well-crafted, it has the potential to capitalise on the market's desire for a single standard in order to achieve domestic pre-eminence. This would assist the RBI in avoiding a loss of control over market circumstances. Nonetheless, the 'dollarization' of commerce that has occurred in some regions of the world should serve as a cautionary note.

Because digital tokens are not bound by national borders, their widespread use would erode our capital restrictions. As a result, this would put pressure on the RBI to prevent the rupee from losing value both within India and in relation to other currencies such as the US dollar.

Thus, inflation must be kept low and consistent in order for a digital rupee to remain competitive. Nobody can predict how this will all play out. However, knee-jerk restrictions rarely succeed. Rather than that, let us control cryptos.

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