Should India permit cryptocurrencies? Sitharaman speaks out

Many countries have cautioned against rushing into cryptocurrencies, Union Finance Minister Nirmala Sitharaman said on Sunday, as Facebook's proposed virtual currency Libra became a buzzword during the annual meeting of the International Monetary Fund and the World Bank.

In fact, Reserve Bank of India Governor Shantikanta Das spoke about cryptocurrencies during one of the interventions this week. The RBI has banned the use of cryptocurrencies in India. 

On July 22, the Indian finance ministry released the recommendations of the Subhash Garg committee, which was constituted to study cryptocurrencies in India. The committee concluded that virtual currencies inherently lacked value, and recommended that they be banned in India. At the same time, the report claimed that distributed ledger technology (DLT)—the architectural backbone of cryptocurrencies—and associated solutions should be encouraged in India. 

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"On our side, the Reserve Bank Governor spoke about it during our turn to intervene. I got the sense that many countries were cautioning on rushing into this," Sitharaman told a group of Indian reporters in response to a question on the discussions on Libra, the proposed virtual currency from Facebook, which was one of the talked about topics this annual meeting.

Earlier, the RBI had set up a committee to explore feasibility of launching an official digital currency amid central banks around the world exploring the option of introducing fiat digital currencies.

"Some of them [countries] of course that they shouldn't be using, all of us shouldn't be using the name stable currency because that's the expression they used. Many cautioned to the extent saying even the name should not be stable currency, it should relate to virtual currency or something of the kind," she said.

Sitharaman said three or four different names were mentioned by different people but the overall sense was that "countries will have to show extreme caution much before anything is said or moved on this".

"In fact, this morning some of the presentations were also highlighting the strengths of such virtual currency. But equally everyone without fail spoke about the challenges together with talking about it as a if necessary step forward. So everyone was stepping cautiously on it," she said.

Kristalina Georgieva, Managing Director, IMF, said the organisation has been engaged quite extensively with others, like the Financial Stability Board, the European Central Bank, on the question of digital currency, stablecoins about what are the benefits and risks involved.

"We take a very balanced approach. We look at the ease of use, cost savings, and most importantly, financial inclusion as very important benefits. But we are also very mindful that they can be a risk for privacy, consumer privacy," she said.

Georgieva said digital currency can be abused for illegal purposes and, in the worst case, for the financing of terrorism.

"And there are issues on sovereignty that need to be well understood and addressed. And in that sense, we will continue to work," Georgieva said.

"We are not specifically focusing on Libra. We are looking into, one, the inevitability of expanding digital money on the wave of the digital revolution, but then the necessity to do so, mindful of monetary stability," the IMF managing director said in response to a question. 

-Inputs from PTI