Thinkpad: Decisions, Decisions...

Happy Sunday.

Decisions can be awfully painful. Should I go this way? Or that way? Should I take a decision at all? Or take a decision not to take a decision? Once taken, decisions can also be cathartic. If there are any Punjabis reading this, they will identify with the ‘syapa mukka’ sentiment that follows a decision. Translated loosely, it means ‘over and done with’.

Anyways, Indian authorities seem to be approaching that point of decision-making when it comes to cryptocurrencies.

A few weeks ago when news of a Cryptocurrency Bill being listed in the current Parliament session came to light, it sparked much confusion. After the Supreme Court struck down the Reserve Bank of India’s effective ban on Bitcoin-like cryptocurrencies on grounds of proportionality, it was thought that the government would come up with a middle ground to deal with these assets. We use the word ‘asset’ deliberately. More on that in a bit.

Despite the confusion, it does seem like the government is veering towards a complete ban after giving investors a transition period, BloombergQuint’s Somesh Jha reported in this story. A very passionate young crypto community in India is pushing back but we don’t know if they will prevail.

As Thinkpad has said before, the world has changed since 2018 when the effective ban on cryptocurrencies was first announced. We don’t just mean that Elon Musk has become a believer but that ‘crypto - the asset’ is starting to see greater acceptability as ‘crypto - the currency’. Although, Nicholas Taleb disagrees. “A currency is never supposed to be more volatile than what you buy and sell with it. You can't price goods in BTC,” he wrote on his Twitter page. It’s Taleb, so it didn’t end there. He added: “In that respect, it's a failure (at least for now). It was taken over by Covid denying sociopaths w/the sophistication of amoebas.” Ok then.

Nevertheless, central banks across the world, including in India, are scrambling to catch-up. Most agree [not the crypto fans, of course] that having a parallel currency or medium-of-exchange running in an economy is not a great idea. If a retail digital currency is what the public demands, then it must be central bank digital currencies that fill that gap. This BIS speech details the concepts which need to be understood and considered.

In light of what is happening globally, it is slightly difficult to understand why India could not have found a way to regulate ‘crypto - the asset’, while working on a CBDC, if the need for one is felt.

The other difficult decision in the making is around privatisation.

This week Prime Minister Narendra Modi made a big pitch in favour of private enterprise. It was every free market capitalist’s dream come true. The speech suggests that there is strong political backing for the government’s plan to privatise widely beyond a few identified strategic sectors and companies. But, as Raghav Bahl writes in this piece, it is one thing to say you want to privatise some 300-odd public enterprises, it is another thing to actually do it. Perhaps it’s time to think differently?

The third and final decision is one made by the RBI. A decision to remind the markets of the truth — don’t fight the central bank. Last week, we flagged-off a tussle brewing between the central bank and the bond markets, which were bidding the 10-year yield higher in light of the large government borrowing programme and normalising economic conditions. This week, the RBI tried to stamp out the revolt. After rejecting high yield bids at last week’s auction, it bought government bonds via open market operations on Monday, apparently followed it up with secondary market purchases and partially devolved another auction. It managed to drag the benchmark yield back below 6% (for now), kicking and screaming, leaving behind a bunch of bruised and battered traders.

We now have a central bank keeping both the currency and bond markets on a very short leash. Micro management much? Or doing what’s needed?

Till next week.