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Does Digital Currency have a bright Future?
Over the years, the RBI has changed its stance and now acknowledges possibilities for blockchain technology
 
On 24 December 2013, RBI officially warned the public about the potential financial, operational, legal, customer protection and security-related risks they are exposing themselves to by using virtual currencies such as Bitcoins. Specifically, it warned that transactions were on a peer-to-peer basis and there was no underlying backing for the digital currency, or central registry, nor any recourse, in case of disputes.
 
RBI took note of Bitcoins and their use, nearly five years after the crypto-currency was launched and because it was fast gaining ground through social media and Bitcoin exchanges. RBI’s warning had an immediate impact and the spread of Bitcoins slowed down considerably. Some exchanges also shut down. 
 
But, in December 2014, RBI governor, Dr Raghuram Rajan, indicated a change in stance. In a television interview, he said that digital currency was getting safer and, over time, could be an acceptable form of transaction. By December 2015, there has been a further change of heart at RBI, when its financial stability report said, “With its potential to fight counterfeiting, the ‘blockchain’ is likely to bring about a major transformation in the functioning of financial markets, collateral identification (land records for instance) and payments system.” This has caused a lot of excitement among Bitcoin enthusiasts around the world, since India’s large population and record of quick adaptation of technology makes it a fertile ground for the proliferation of this new currency. 
 
Technically, Bitcoins and crypto-currency can grow without any reference to the regulator. However, it is important to remember that RBI’s warning in 2013 triggered raids on a Bitcoin exchange. Anything that is not formally regulated in India faces the risk of harassment by investigation agencies and even a shut down, when regulators decide to take note of it or choose to disapprove. 
 
Blockchain technology is attracting the attention of global regulators because it is distributed ledger technology, which adds verified blocks of transactions and allows payment systems to operate in a decentralised way without the need for a centralised registry or ledger. This allows multiple entities to rely “on the same, shared, authenticated information and drastically reduce the cost of record keeping.”
 
Banks and financial companies, now, believe that the technology in various forms will transform financial sector architecture and offer a new way of trading financial instruments without the need for expensive central depositories that are also prone to cyber fraud. A complex process of validating transactions by globally distributed ‘miners’, adding blocks to a dispersed chain, makes it almost impossible to go back on a transaction, say experts. 
 
Major finance companies around the world are devoting significant resources to study the technology and its uses—and regulators are watching developments very closely to study the risks associated with the systems. One key issue is the scalability of the technology, if it is to be used for global financial transactions. What is certain is that the technology is evolving fast and companies such as Deloitte Consulting are predicting that 2016 will see the emergence of new uses of blockchain technology as various experiments and prototypes become a reality.
 
An article by David Wessel, posted on the Brookings.edu website, puts the hype and the hope that is built around this ‘disruptive’ technology in perspective. He says, “The evolving technology faces risks and obstacles. Some of these stem from the public impression of Bitcoin, a currency created with this new technology. These problems include hacking attacks on Bitcoin wallets, governance challenges, threats to consumer protection, money-laundering concerns, resistance from entrenched financial institutions and raised regulatory eyebrows. It could turn out to be an infant technology, one that most of us don’t yet understand, one that is about to change the world; think the Internet before browsers. Or it could fizzle out.” 

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COMMENTS

SATISH MADHAV

11 months ago

Central banks around the world do not like any competion to their power of being able to print money recklessly.Bitcoin was emerging as a big threat to that and so,the attempts to stifle it.Despite that,Bitcoin has somehow survived despite setbacks like the Mt.Gox collapse and the Silk Road scandal.If there is any change in the attitude of the central bankers toward crypto-currency,then it means that somehow they have been able to work out a mechanism which brings them under their control.

Weak demand, high debt limit credit ratings of Indian firms: S&P
Mumbai, Weak demand and high debt continue to pull down the credit profiles of Indian companies in an overall context of lacklustre economic conditions in the country, ratings agency Standard & Poor's (S&P) said on Tuesday.
 
"Companies still face anaemic demand and lower capacity utilisation, resulting in weak profitability," S&P said in a report titled "Revival In Domestic Demand Can Reduce Downside Risk For Indian Companies In 2016".
 
"Economic conditions in India remain lacklustre despite several government measures to boost investments in the economy," said S&P's credit analyst Mehul Sukkawala.
 
"If these companies can manage this (6-9 month) period without significant damage to their financial strength, we believe their credit profiles could have bottomed out," he said.
 
"The first six to nine months of 2016 will be crucial for rated Indian companies. This period will provide signs on whether domestic demand is reviving, government reforms are moving ahead, and global economic conditions are stabilizing," he added.
 
Indian companies with high levels of debt remain vulnerable to downgrades, while lower commodity prices have also reduced headroom for firms operating in commodity linked sectors such as metals and oil and gas, the American agency said.
 
S&P's said the credit quality of half its portfolio of 22 rated firms in India is expected to remain stable in 2016.
 
The report also said rated companies are at their peak debt levels following a significant increase in debt-funded investments over the past five years, thus limiting the scope for positive rating action.
 
On the fallout of global developments, S&P said the Chinese slowdown will have limited direct impact while higher US interest rates should be manageable.
 
"A slowdown in China is not a key factor for the credit profiles of most rated Indian companies because these companies target the domestic or developed markets.
 
"That said, any further slowdown in China could trigger significant turbulence in the global financial and commodity markets and hurt Indian companies," Sukkawala said.
 
The impact of a US interest rate hike on Indian firms would come largely through the exchange rate channels.
 
"The expectations of a rise in US interest rates should be manageable but any related fallout from sudden and significant depreciation of the Indian rupee could pose a bigger risk to our rated portfolio," said S&P.
 
The rupee slid on Friday by 30 paise to a new 28-month low at 67.59 owing to fresh US dollar demand from importers caused by continuous foreign capital outflows.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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