Cryptocurrencies are a by-product of cyber-age economics. They are virtual currencies that are not controlled by the monetary authority of any national economy, which is usually the central bank of that nation. In India, this happens to be the Reserve Bank of India. A central bank’s primary responsibility is to control the supply of money in the economy; it has a monopoly right to do so. In other words, no one else can print and circulate the Indian rupee. However, if a group of people agrees to use something other than the Indian rupee as currency for settling debts or making transactions, there is nothing much that the central bank can do. This alternative could become an unregulated, but effective, medium of exchange. Cryptocurrencies are a type of virtual currency that have become increasingly popular during the last couple of decades. The bitcoin is one example. The RBI had curbed the use of cryptocurrencies, stating that these were not under the control of the monetary authority and their unregulated growth could have adverse effects on the economy. The argument given in favour of their use centred on the fact that these were being used without any major repercussion on economies, and that they could be treated like any other non-rupee currency with a market-determined exchange rate between the two.

The recent judgment by the Supreme Court to lift the ban imposed by the RBI seems to have endorsed this rationale. In other words, the court has agreed that something of use to some people in their economic dealings should not be prohibited. Moreover, these dealings did not have any obvious adverse effects on the economy. With the lifting of the curb, there may now be a significant growth in the use of cryptocurrencies. The central argument, familiar to economists, is that while alternative currencies (sometimes referred to as ‘near-money’) are not something bad per se, they have to be controlled and measured. There are two simple reasons for this argument. First, unrestricted growth in money supply can cause hyper-inflation and lead to economic mayhem. Second, the transmission of monetary policy by the central bank would become ineffective if the RBI did not know the amount of total money that is in circulation. Hence, keeping with the dominant view in world financial markets, there is a case to bring the ban back with nuanced arguments provided by the RBI. It would be an economic disaster if an alternative monetary system emerged in India over which the RBI would exert little or no control.