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Rashmin Sanghvi & Associates

Chartered Accountants

220, 2nd Floor, Arun Chambers,
Tardeo Road,
Mumbai - 400 034,
Maharashtra, India.

Tel. Nos.: (+91 22) 2351 1878, 2352 5694.

Fax : (+91 22) 2351 5275.

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Home Articles Taxation         Share :

Central Bank Digital Currencies (CBDC) & Private Crypto Currencies. (PCC)

CA Rashmin Sanghvi

18th February, 2022


  1. PCC are Zero Value Tokens:

    A private crypto currency (PCC) has no functional utility. No underlying value. It earns no income. There is no legal promise to pay. It is not an IOU. In effect PCC is nothing. Just hot air balloon. A reasonable man may not buy a PCC.


    It is partly similar to paper currency issued by a central bank of a country. Similarity is that both have no intrinsic value. However a central bank currency is backed by government’s law making it a legal tender. PCC is backed by nothing – except its popularity managed by some clever mind manipulators.


    There are people who just want it because others want it. It has a speculative value. And people love the thrill, temptation of earning money so on. There is also a psychological issue: “Others made big money & I am left out.” This jealousy overrides logic.  Since it has acquired cross border value & secrecy; it has become useful for illegal transfer of money – Hawala & Money Laundering. Whether legal or illegal, it has a value for some people.


    We must accept temptation for prestige values, jealousy etc. as a regular part of human psychology.  It is similar to gold, diamonds, & other prestige value assets. Sensible regulators must accept that “There are all kinds of people in the world”.


    Some people knowing this human weakness will exploit it & make money.  Most will lose money. Those who want to make money out of people’s weaknesses, will conduct systematic mind manipulation to ensure that people keep buying it. And those who are tempted, will happily accept their theories. India has experienced similar mind manipulation during the times of Share Market Scandal of the years 1991-92.

  1. Why Government is not prohibiting crypto currencies?

    Government is taking so much time in coming out with law on PCC- probably because it recognises the fact that so many Indians are interested in it. If government bans it, or regulates it too much - market & money will go abroad. Banning PCC may be like Daru Bandhi. The market will go underground & will cause more damage.

  1.  RBI’s crypto currency (CBDC):

    Even if RBI issues cryptos (CBDC), may not add any convenience over credit cards & payment gateways. Except that people will trust RBI more than all other banks & payment gateways. And bank charges on credit card will disappear. I can’t think of a Central Bank charging fees to accept its currency. But no one knows what will happen in future. Assuming that RBI does not charge for using its crypto currency, it will be a great advantage to all credit card users. It would mean that RBI will bear the cost of generation of crypto currency (popularly called mining), protecting it from global hackers and maintenance of the system. This cost may be set off against the cost of printing paper currency which get soiled & have to be replaced periodically.


    But CBDC value will most likely be linked to Indian Rupee. So it will depreciate every year. Looking at the past trend chances of its appreciation are dim. It will have very little speculation as compared to PCC. (Even on official Rupee, there is speculation. But it cannot be compared with speculation in PCC.) And quite likely, it will be of no use for illegal hawalas, money laundering etc. All restrictions & disclosure requirements applicable to Indian Rupee under FEMA & tax laws will apply to CBDC also.


    While PCC are being compared with gold; it should be noted that gold can be made into jewellery etc. and shown off. It has prestige value. PCC cannot be exhibited. Ladies will have little interest in PCC.

  1. Who will buy CBDC?

    I am trying to reply to my own query. RBI has still not announced its CBDC policy. Hence what I am saying here is my estimate & guess work mixed together. If I hold CBDC it will amount to my having an account with RBI. I can pay & receive directly without needing banks as intermediaries. Banks do not pay interest on current accounts (Demand Deposits). So, instead of keeping my money in bank current account, I may keep with RBI in Crypto account =CBDC. Trillions of Rupees held in bank current accounts may move to RBI. (As per RBI website, total amount in banks’ current account in January 2022 was Rs. 19 trillion. See RBI website –

     https://m.rbi.org.in/Scripts/SDDSView.aspx?param=3 ).


    White money size is also very big. This can move to RBI. If this happens, banks & all Payment Gateways will be very adversely affected. In fact, entire financial institution structure in India will be under challenge.

  1. Are PCC legal or illegal?

    A weakness amongst professionals is - They search law to find out "whether crypto currencies are prohibited under any law?" If not prohibited, they are legal.


    Answer is: When laws were passed, there was no crypto currency. So there is no legal provision banning or permitting PCC in India. But understand that - law is an artificial super – imposition over real life. Governments want to control people, their activities & their assets. They cannot control something which does not exist. So there was no law on PCC so far. Now that cryptos have become popular, Governments around the world will bring about laws regulating or prohibiting cryptos.


    The fact that there is no law banning PCC is a current fact. Soon there will be laws is a reasonable estimate. What will be the laws? Let us try to project future with available reasoning. It has to be understood that projections may or may not materialise.

  2. Seigniorage(Government Monopoly):

    We need to remember that - Government has monopoly of issue of currency. With this monopoly Government earns huge profits. It is creating money & financing budgetary deficit. It can spend money without earning revenue. It will not allow this lucrative monopoly to slip away. Today that advantage of issuing money without any backing is enjoyed by issuers of crypto currencies. I am repeating: Issuers of most of the cryptos get free money for doing nothing except burning electricity on their computers. It is called “mining”. Mining what? Mining nothing.


    It is natural to expect that Government will bring laws to protect its monopoly and to stop private crypto currencies. One can ask: “Is this monopoly fair?” Well, the monopoly benefits government and government is law maker. That is life.


    In any case, why should a private issuer of a crypto get money for nothing? If Government gets it, atleast it is supposed to be spent for the nation.

  1. International transactions:

    Today some PCC are accepted world over. So cross border transactions in PCC do not require going to banks & converting domestic currency into foreign exchange or vice versa. It also escapes FEMA discipline. (Foreign Exchange Management Act of India.) Will CBDC also permit international transactions?


    I do not know what RBI will do. But let us consider logic. Under FEMA, RBI has control over money supply & use of Indian Rupee. We cannot send our money abroad. Foreign money can come in only as directed by RBI or government. If RBI issues a CBDC and makes it freely transferable; it will lose control over Indian Rupee. Government will have to first scrap FEMA before issuing an internationally transferable currency. Do you think that government is ready to scrap FEMA? I don’t think so.


    This also raises an interesting issue. If FEMA is scrapped, the Hawala market will disappear. The hawala business (foreign exchange trading & cross border transfers), which goes on as an under-ground business in India; will come over the ground and will be legal. That part of crime & litigation will be over. Then why is FEMA not scrapped? That is another story.

  1. Block Chain is Distributed Ledger.

    Every transaction in a PCC is recorded in a few thousand nodes around the world. It is said that for Bitcoin, there are 47,000 nodes. If I pay salary to my driver by a crypto, where is the need to record it over 47,000 nodes? It is criminal waste & a fundamental weakness in cryptos. Because of this unnecessary repetition of record keeping globally it has become an electricity guzzler. And one transaction takes ten minutes to be completed. A CBDC should drop this weakness & record the transaction in far fewer nodes.

  1. CBDC & PCC  both are parts of digital revolution that is growing at Geometric Progression rate. Digital commerce has already challenged international taxation system and shaken up many industries. What this digital revolution will do in next twenty years, is difficult to project. Be prepared for radical changes in global society.


Just the fact that millions of people are investing billions of Dollars in crypto currencies – does not prove or disprove PCC as good or bad. One needs to consider it independently on its merits as an investment asset or as a currency. Large investments & speculation in PCC only exposes weaknesses in human psychology. By fundamental analysis, PCCs are hot air balloons.


CBDC will have low speculative & criminal interest. Hence spectacular speculations may not happen in CBDC. As “white money” it may be better than cash, credit cards and payment gateways. It can shake up entire finance business & its structure. Hence RBI is going slow on CBDC.