NEW DELHI: Chief Economic Adviser (CEA) KV Subramanian says a distinction needs to be made between crypto as an asset and crypto as a currency.
Across time, only currencies issued by sovereigns have got legitimacy. What provides currency a credence is the fact that it is backed by a sovereign, he said in an interview to ET NOW.
An important aspect that has to be factored in while talking about a virtual currency is that there is nothing to back the price of a crypto. “For example, for a stock, the cash flows of that firm is what is actually the backing for that stock. If you take gold, you know it is actually an asset unlike crypto. There is nothing backing crypto and, therefore, intrinsic volatility can be very high, which also impacts the attractiveness of crypto as an asset itself,” Subramanian said.
Historically, he said, assets have been those that have actually had more stable values and something that has an underlying. “Whenever you take a financial innovation, it is a zero-sum game. In other words, it has no benefits for the real sector or maybe minimal benefit for the real sector. And, thus, it has to be traded very cautiously. Tomorrow, if you and I decide to sit and play cards with each other, what might happen is that money changes hands. Maybe, you might become richer at my expense. But, collectively, the two of us will actually hold the same amount of money that we started with,” the CEA said.
Using the game of cards as an example, he said money would have changed hands but that money would not necessarily flow into the real sector. “Blockchain has, in fact, the potential, even without crypto itself, to actually benefit the real economy. That has happened even before the fascination for crypto has caught so much fancy,” he said.
‘Distinction needs to be made between crypto as an asset and as a currency’: CEA KV Subramanian”Distinction needs to be made between crypto as an asset and as a currency” Here’s CEA KV Subramanian views on cryptocurrency
The government is reportedly planning to regulate cryptocurrency by categorising it as an asset, instead of a currency.
The CEA to the government said: “Those who are in the cryptocurrency world claim that crypto is a panacea. The truth is it is somewhere in between.”