The webinar on the 17th July 2020, was first of its kind in Indian crypto space where a regulator agreed to get on a panel to share his views and understandings on the Indian crypto space.
The panel started off with Mr.S.C. Garg’s keynote speech lasted for a few minutes following which the panel started and eventually it was extended by 15-20 more minutes given the action which was quite interesting for the audience.
The event was viewed live by over 3500 people live including the many YouTube channels where it was getting broadcasted as well. The PR Coverage was also great with over 100 articles in over 16 languages globally.
But for those who didn’t really manage to understand the direction of the conversation, we decided to ‘Demystify the conversation with Mr.Garg’ to make it easy for many who are assuming several aspects following the webinar.
Let us do the same, the CREBACO way!
We extracted Mr. Garg’s comments and made it simple to understand and also added our opinion on what it may mean.
We also did a first-ever effort to provide a word to word detail of the panel discussion as well at the end of this page as well which will make the readers understand it better because when someone like Mr. Garg speaks, every word matters.
| Mr. Garg Statement | What Does it mean | CREBACO Comments |
| Nice to be with the Crypto-community Largely in today this afternoon. What I am gonna do is, I will explore 2 basic policy trains in my 15 minutes of my keynote address. | The first interaction with the crypto community | We observed that Mr.Garg was surprised by the overwhelming response of the webinar. This was the first interaction by him with the industry participants. |
| The First one is the issue connected with the Cryptocurrency as Currency, and the entire movement towards moving from paper currency to digital currency, which also includes the proposals for central bank digital currencies and also what i propose in one of the papers in that currency as digital currency. So that’s one stream of thoughts which I would explore | The regulators consider Crypto Currency as a currency. Believes in CBDC, as going paperless. When INR goes digital, it can be considered as a digital currency. | When the government or RBI considers anything else as currency, the currency controls come into action. That invites the guidelines for issuing counterfeits, AML, and FEMA regulations. This makes the currency illegal and calls for stringent steps for banning it. Two Issues connected with : A. Cryptocurrency as a currency B. Cryptocurrency as an Innovation Basically arose out of the new technological innovation, blockchain technology or distributed Ledger Technology |
| The second one is the cryptocurrency basically arose out of the new technological innovation, blockchain technology, or Distributed Ledger Technology, which is very useful in creating and delivering several services including Creating a commodity or an asset called cryptocurrency. | Considers the potential of the blockchain technology behind it for creating digital assets. | Many believe that cryptocurrencies are the result of Blockchain technology, but, Blockchain is just one of the technologies cryptocurrencies use. It’s not whole on its own. It may have standalone limited uses like create digital assets |
| So how does that strand of thought or developments span out going forward and how should we deal with it. So these are the two Broad issues that I will take up today | Going forward | There are indications of development since his draft bill. |
| Let me begin with the first one. I don’t think this community needs any introduction about the currencies that have evolved and the currencies, as money functions or carry out the key function of a sort of an interposing between two commodities and services for being exchanged. | Considers currency as terms of the settlement. | Anything can be used for settlement, even assets like land gold or anything which the other party accepts for goods and services. Currency is just a facilitator but doesn’t have a value of its own. |
| So when you, let us say, buy anything like television or anything, you use the currency to make payment for the TV set that you bought. Likewise, when you sell something, I mean Services, for example, somebody like Kithan & company sells the legal services where the services are being valued in terms of the currency and the money is paid in the form of the currency, So currency carries out an extremely important function, of enabling the exchange of goods and services in the economy of making payments. | Believes that currency is the medium of exchange. | If that was the case, 180 currencies exist and are used for settlement of transactions. Bitcoin is just another. It’s the trust in the guarantor which enables the settlement between two parties. |
| And that is why ever since humanity started producing for other than oneself, some medium of exchange has to come for enabling or carrying out these transactions. We had Barter, where goods were exchanged with goods, then the first innovation of currency came in the metallic currency scheme came into being. The gold and silver served for currency many many millennia. | Reference to the origin of the currency system | The currencies since the very start had an emblem of the king, or kingdom signifying that the governing authority will honor the currency in case of non-acceptance anywhere else. Debt instruments were born. Which mainly works on trust which is ignored. |
| When its limitations came into existence. It needed to be funded and the gold and silver supply could not, and there were also a lot of other limitations of handling gold in terms of commodity, carrying it out etcetera, distances, Value, The next sort of evolution in currencies took place which is the paper currency. | As above | |
| Paper had several advantages, like very very easy to print, a lot of cost control, no constraint on the availability of the currency. As much as the economy needs you can provide and therefore all over the world the paper currencies came into being. Initially, paper currencies linked to the gold and gold standards but after 1971 and all. The paper currency went off any metric standards and we have pure- pure fiat currency as the value exchange currency. | Explaining the emergence of paper currency and its value | This indicates that paper currency could be split infractions and could be made available as per the requirement of the governments. This gave birth to inflation. |
| We should appreciate one critical difference as we move from the metallic currency to paper currency; Metallic currency is worthy once which had intrinsic value, You can express everything else in terms of the value of the intrinsic metal, Gold had a certain kind of value, so you can express, Everybody and everything else’s value in terms of gold and so is the case with silver and it is like that. | Believes that value comes from the commodity. | Since 1971, when gold and paper currency standards were lifted, the value of the commodity moved from value to trust. Here the world trusts the US dollar more than anything because we all trust America. Not because America has so much gold. It’s the guarantee of honoring the instrument. This inflation is growing like slow poison for the global economy. Suddenly after 1970 the inflation and debt spiked up globally. |
| Paper currency had no intrinsic value, paper currencies value is maintained by the central bank, earlier it was the government but now it is the central bank in most countries of the world, and that is very finely done by regulating how much of the currency you can sort of print, circulate, Things like in relation to the economic need of the country, and if your currency serves as the international model of exchange for example; US Dollar which is the prominent mode of exchange world over, you need to take into account the global economic need for the currency and that is how the value of the currency is maintained, whenever you have some sort of policies to issue more currencies than what is needed by the economy the inflation came over, we had high and many episodes of much high inflation. | Self Explanatory | As above |
| Many years the world learned how to control it and today in most countries the value of the currency is comfortable. There are episodes of inflation in some parts of the world even today, and the inflation is nothing but a sort of diminishing on the value of the currency, or the paper currency Issued. | Accepts that inflation is inevitable | Globally the value of goods and services has been increasing due to the inflation which takes place due to the flaw in the system. When inflation gets beyond control, it gets corrected by the recession. Here the yield curve goes negative. Results in unemployment and lack of liquidity in the market, for which the governments pump in more cash and subsidies to curb it down. |
| So paper was serving a very well in need of currency for many years and then the innovation of sort of the inflation technologies came which transformed paper currencies deposited as deposits in the banks. Also to be used as a means of payment. | Self Explanatory | As above |
| And today most of the transactions actually are carried out in terms of value by digital means, By making digital payments, there is no exchange of physical cash, in over 90% of transactions in India in terms of value, but when it comes to in terms of volume even today about 80% of the transactions and most of them are small value are carried out by means of physical exchange of coins or notes. | Banks use tech and make things even more efficient. | Well, banks have been given too much power here. The global debt is at an all-time high of 250+ Trillion. |
| But large amounts of international payments and otherwise, are taking by means of digital means today. Now innovations have taken place after the core banking solutions scheme and today for example UPI itself has transformed all the bank accounts into one single repository or a wallet so to say. Of which everyone has ease of that and today UPI will make transactions without any hitch instantaneously without any paper currencies. | International payments and domestic payment processes are compared | International payments take place with SWIFT (System for Worldwide interbank financial transactions) which includes Nostro and Vostro accounts of the currency regulating country and the settlement banker. UPI is a temporary settlement system, where the transactions get actually settled between the banks by the end of the day or maybe a few days at times. This causes a temporary spike in the liquidity in the market. I.e. two banks are using the same amount of cash for 24 hours. Bitcoin doesn’t do that, it settles in a few minutes, the actual, not a temporary authorization to settle. |
| A lot of digitalization of the currency function has taken place, though let us remember the fundamental base is still the paper currency and the value is expressed in terms of the value of paper currency which is in circulation, So that has happened so far. Now there are some limitations of the Paper currency itself which are being recognized, you have to still exchange notes if you want to make payments in cash or by means of physical currency, carrying large amounts of notes becomes difficult, and when you have now better means coming up the digitalization of the economy and the businesses taking place for all your entertainment, sports almost many things and many services are today delivered digitally, is it time for us to think of a Digital currency.? | As Above | As Above |
| Now that is where the cryptocurrency options come as something which is relevant as a currency option. Now the private innovators have sort of designed used very creatively the blockchain technology and have created the currency in the form of computer code, for the ease of reference i would just call it code and that code is what is offered to serve as the currency. | Considers as private. Considers as code. | We must consider Bitcoin in this argument. It is a decentralized network, not a private currency. It is not just a code, but a technology backed by codes, P2p, encryption, and deployment of computing power to make it work. Because of its decentralized nature, it cannot be considered private but can be considered as an open network that follows the rules of its initial program. |
| The Bitcoin example was given very well by Rashmi and so it serves as a means of payment. It is valuable in its own right. So people when you are expressing that people make an investment, they make an investment in bitcoin, some other currencies as Something which is as valuable and investable kind of good or financial investment. But it also serves to some extent to be a function to make payment. | Serves as a medium of ‘Payment’ Has its own value Consider its value is determined against fiat currencies and does not have standalone value. | According to the statement, Bitcoins value is calculated as per the fiat currencies which is either the USD or INR or any other currency. But 1 Bitcoin remains one bitcoin, its value fluctuates in fiat currency. For example, you have 10 grams of gold, it will always be 10 grams, but its market value is determined by several factors. If someone wants to sell you his goods and services in gold, the market prices become irrelevant. Here the value is gained through consensus. |
| That is where it interfaces with currencies. That is where I think we should evaluate very carefully what are the digital options for making Digital currency, let us say from the paper note rupee to the digital rupee obviously the DLT based cryptocurrency or virtual currency is one such option. There are other options also, for example, I have argued that why not make every note every banknote as a demated note. | -Intervenes with other currencies -Evaluate other digital transfer options -Indirectly commenting on CBDC based on DLT | Bitcoin is not there to intervene with any fiat currency. It complements the global economy by serving as a global decentralized currency that is stable in its own attributes. It is deflationary, noncorrelated, and peers to peer which is above the bureaucracy of the nations. Even during the pandemic the currency has been one of the most stable and is also the best performing asset class. |
| It’s like a counterfeit Currency, right? And how do you treat counterfeit currency? So if somebody today sort of comes out with a fake 1000 or 500 Rupees note of 2000 rupee note. The law prescribes, intact it’s part of the terrorist, anti-terrorist act and the criminal penalty associated with that is as high as 10 to 25 anyways. So in respect to its use of currency, it’s nothing more than or nothing better than counterfeit currency, right? And therefore you have to treat it like that. | -Believes it’s a counterfeit currency -Laws are as per the counterfeit currency standards -Believes that it is out there to challenge Indian Rupee | This is a clear misunderstanding from the regulators while drafting the bill. The strict laws which talked about a fine of up to 25 crores and 10-year term are for the counterfeiting of currency. Bitcoin is not a counterfeit, it is rather a system which eliminates the possibility of counterfeiting. Further, Bitcoin does not challenge any fiat currency or seems to have intentions to overcome the existing ecosystems, but it gives the opportunity to use another option for the user. |
| I think the only legitimate place for the crypto assets to survive and thrive in as a commodity or as assets. So you can invest in those assets and that is where it should appropriately be regulated and that’s the legitimate business to do. We have to protect the gullible people, the unknowledgeable people, that much the public duty must be done. And then let the crypto asset community thrive. | -Cant use currency has given the existing system structure. -can use it as commodity or asset class -government has to protect the interest of the investors -wants the ecosystem to thrive more | The understanding of the regulator is that it is a currency, but he seems to have no issues if the same is used as an asset or commodity. Digital assets are something that can be used for settlements. In fact, any asset can be used for settlements hence Mr.Gargs opinion seems to be affirmative that you can regulate it as a commodity but not as a currency |
| We were very, very apprehensive and very, very clear in a way that we need to protect these people. So therefore currency by implication which is never issued by anybody in the private system or the reasons I explained whether intrinsic or not intrinsic and which is indirectly criminalized by the terrorist act bill for this cryptocurrency specifically. | -Currency is an issue -Private currencies, which has any backed valuation or not, is not allowed. -Hence because of this government has been apprehensive -Had to protect citizens | India does not allow the circulation of private currencies. Due to the regulatory implications, it was the regulator’s duty to protect the common man from getting exposed to something so different. |
| I don’t have any last remarks. I think we had a good discussion, a very extensive one. |
