Impact of cryptocurrencies on the economy
Cryptocurrency has caught the fancy of one and all. So much so even students have started investing in it resulting in the emergence of a new market. The impact it would have on the economy is something that one has to view. In India, the Reserve Bank of India (RBI), the apex bank which overlooks the money flow in the economy is wary of cryptocurrencies.
The biggest fear of RBI is money laundering. Senior officials in several forums expressed concern of terror funding. Also, crypto currency is unpredictable form of currency which is a cause for concern. Every transaction is digitally recorded in blocks that act like ledgers and once a block is filled a new block is created. Though the transactions are recorded, the information of the parties participating in the exchange is not revealed. The money can only be tracked when it is converted into cash. This is the reason why the central bank is not so sure to make it a legal tender.
The existing structure is such that the central bank maintains all records of the transactions undertaken by the people. With the advent of crypto, this could be challenged. Cryptocurrency is not backed by sovereign guarantee and the Indian government has not made it legal.
Transactions in cryptocurrency are growing rapidly and are based on blockchain technology. It would be difficult for the government to monitor the transactions across blockchains. Another worry for the government is tax evasion by using crypto transactions. This could pave the way for investors to store away income.
