Value of Money

All currencies, in a sense, are cryptos. As currency, they are a medium of exchange. It is a mutual agreement, irrespective of their intrinsic worth. This has happened especially after the currencies went off the gold standard. Britain did so in 1931 followed by the US in 1933. The US was going through the Great Depression and Franklin Roosevelt decided to print more dollars to fund his New Deal. Before the thirties, the currencies were backed by the reserves of gold in the central bank’s vaults. Paper money was a promissory note that could be exchanged for its value.

No tie up to the gold and the currencies have become ersatz money used in board game Monopoly. Even when gold standard prevailed, its supposed value was a fabrication (there was a mismatch between the demand and supply of the precious metal due to its relative scarcity).

There were token exchanges — Roman empire paid wages to the workers in salt. It was called ‘sale’, and that word later became satary. Even cowrie shells were used as currency. These days a piece of paper with the signature of a bureaucrat promising to pay the value has acquired legitimacy. Is the value, say a particular sum, the same over a period of time? It is a make-believe value. That is why cash has been code-named in terms of several graphic terms.

Money, as a concept, is based on notional worth. It is fungible. It could become worthless by a single stroke of pen when demonetisation is announced.

Revolut

Revolut is the British fintech company. It intends to launch its services in India in the second half of 2022. Revolut products will be adapted to the needs of the Indian market. It will offer products in three or four stages.

To begin with, it will make available global remittances, and will cater to payments segment. Later, it will launch trading and investment offerings. It will be followed by credit and lending. Lastly, it will convert itself into a full-fledged digital bank. It will be a truly branchless bank.

Revolut’s application has been downloaded by 30,000 people even before its launch. It is going to recruit manpower in India.

Revolut India announched acquisition of international money transfer company Arvog Forex. It will enable Revolut to offer its remittance and forex services to Indian customers.

Roads Recharge EVs

Indiana Department of Transportation and Purdue University propose to develop the world’s first contactless wireless-charging concrete pavement highway segment.

Here the cement is magnetised. For this small particles of ferrite are added to a concrete mixture, which is magnetised by passing an electric current. Ferrite is a ceramic made by mixing iron oxide with silvers of metallic elements, such as nickel and zinc. Magnetised cement creates a magnetic field that transmits power wirelessly to the vehicle.

A plate or box (12’x4′) is buried inside the roadway at a depth of a few inches. It has wire coils which connect to the power grid through a transmitter. The transmitter is surrounded by normal roadway material. A series of such transmitters are embedded in the roadway to transfer power continuously. This power is accepted by the receiver in a smaller box with coils attached to the underneath of a car.

This technology is to be validated. This is the early stage. The cars will have to be redesigned. This charging on the roads may not work for all EVs but can play an important role for some applications.

Electrifying roads can solve the problem of long-haul tracking. The trucks would not have to carry large battery packs. Of course, it would mean huge investment in infrastructure.

A ground-breaking one-mile stretch of road that can charge EVs as they move or sit stationary is to be built in Detroit, USA as a part of an inductive vehicle charging pilot programme.

Crypto Buying

Cryptos are bought at exchanges. A buyer has an account with a crypto exchange. A buyer orders cryptos through an exchange. The exchange finds a match from the market and takes the delivery of the cryptos on behalf of the buyer. A crypto account with an exchange is KYC verified. The platform’s bank account is loaded with fiat currency to trade for the cryptos. As the process is not regulated, there could be variations in the process.

The cryptos thus purchased are kept in an insured wallet. Some exchanges give the custody of the assets to the buyer. Many exchanges maintain a wallet. The user funds are moved through the wallet on authorisation.

In crypto transactions, the saying is, ‘ Not your keys, not your crypto.’ It refers to the custody of the tokens. Typically, a private key, which is alphanumeric, gives one ownership of a crypto asset.

In India, however, most exchanges are centralised. It means they hold the keys. It enables faster transactions. It violates the concept in crypto buying and selling — the presence of an intermediary. However, this is for the sake of convenience. The custodial wallet facilittates faster transactions. Some investors, too, are averse to holding keys, as there is possibility of misplacement which means the loss of the assets.

Centralised exchanges are vulnerable to theft and hacking. Once the exchanges are licensed. Crypto trading will be less risky.

Lesser-known Cryptos

Most popular cryptocurrencies are Bitcoin and Ether. However, over a period of time, many cryptocurrencies have emerged in the market — say more than 11000 currencies do exist. Practically, anyone can create a crypto with a bit of coding. Some are complex decentralised currencies, whereas some get used in videogames. Dogecoin is an example of meme currency.

Some other currencies which are booming are:

Polygon’s Matic: Polygon is founded by three Indians for the Ethereum blockchain. It intends to build a cross-chain platform to enable different blockchains to communicate with each other.

Solana: It has been launched in 2020, as an alternative to Ethereum, and supports smart contracts. Its founder is Anatdy Yakovenko. Solana has DApps. It consumes less energy than Bitcoin.

Cardano: It also supports smart contracts like Ethereum.

Luna: It has been created by Terraform Labs in 2018. The Terra blockchain creates algorithmic stablecoins. These are tied to some physical currencies such as US dollar.

Effects of Cryptos on Fiat Currency

If cryptos are supported, it undermines the fiat currency and the ability of the authorities to influence money supply.

Cryptos ultimately replace the fiat currency to some extent. It is like allowing a parallel currency system in the country. If India allows crypto transactions, these could lead to dollarization of Indian economy. In other words, we are allowing legal tender as well as dollar as currency for transactions. It affects the monetary policy. The ability of the authorities to control the money supply or interest rate gets affected. These policies cannot be applied to cryptos. The country thus loses its policy control of the economy.

The banking system too gets affected if cryptos are permitted. They loose the power to create bank money or cash credit. Even the ability to mobilise deposits is affected. Credit creation of convertible currencies is not amenable to monetary policy. If major chunk of deposits and credit shift to cryptos, the banking system suffers seriously. It impairs the financial stability of the country.

Cryptos are used for cross-border funds transfer. Cryptos are non-reserve currencies. They could seriously affect India’s foreign exchange reserves. These transactions could occur outside capital account regulations.

Of course, stable coins could be more effective than the volatile cryptos.

India has to be circumspect. Advanced economies are on different footing. They would not ban cryptos for strategic reasons. It could give advanced economies global control. Another country could control Indian’s economic policy if there is large scale substitution of fiat currency with cryptos.

Cryptos could be treated as a store of value. However, it should be understood that the demand as a store of value is more for a currency than the transaction demand. It is similar to a competition between fixed deposits and transaction deposits. As a store of value, fiat currency is anchored by monetary policy. Cryptos are just a matter of belief. They are not anchored.

Cryptos are difficult to regulate as they are difficult to define.

According to T. Rabi Sankar, Dy. Govenor, RBI, considering all the above arguments, it is necessary to ban cryptos. There are lot of conflicting signals. The investors feel the RBI officials are creating FUD, crypto slang for fear, uncertainty and doubt.

Crypto Firms to Standardise Regulations

India’s cryptocurrency industry intends to streamline its operations to gain legitimacy among the finance ecosystem. The trigger was provided by the recent RBI reminder that its 2018 circular is no longer applicable as the SC has struck it down in 2020.

There are crypto currency exchanges in India — WazirX, CoinDCX, and CoinSwitch Kuber. These have tied up with the Internet and Mobile Association of India (IAMAI) and have collectively set up an advisory board to implement a code of conduct for the industry. This board will be set up under the Blockchain and Crypto Assets Council (BACC), which is part of IAMAI. It will act as a self -regulatory organisation for this sector.

The code is being worked out. It will be applicable to all member cryptocurrency exchanges. It will include standardised annual audits, routine disclosure of company information and funding, KYC checks, improved data storage standards. There will be reassessment of customer risk profile.

In this industry, what is required is balancing between regulations and supervision. There should be steps to improve due diligence.

The board will interact with the authorities to flag the suspicious transactions. The board will certify exchanges. It will have some external members. In this industry, what is required is balancing between regulations and supervision. There should be steps to improve due diligence.

All this is being deliberated. There is an effort to bring the informal nascent industry under one standard authority.

Tata’s Proposed Semiconductor Plant

Tata is expected to invest $300 million to set up a semi-conductor assembly and test unit. They are likely to set up the plant in South India. It will make outsourced semiconductor assembly and test (OSAT). Such a plant packages, assembles and tests foundry-made silicon wafers. These are turned into finished semiconductor chips.

As we know, Tatas are very strong on the software side. They would like to add hardware to their product portfolio. It is very critical for long-term growth.

The potential clients for OSATs are Intel, Advanced Micro Devices (AMD) and STMicroelectronics. Separately, Tata is already building a high-tech electronics manufacturing facility in Tamil Nadu.

Gaming

In developing games, they use game engines. One such engine is Unity. It is preferred by coders, and small developer teams. However, the preferred choice to make AAA games marketed by big companies, the engine used is Unreal Engine. This has been developed by Epic nearly a quarter of a century ago, It has its C++ core APIs. Artists prefer Unreal. Graphic fidelity on Unreal’s most basic resources contributes to graphical wonders in video games. It is known for its sheer number of tools. A game developer chooses his own area of interest while using Unreal. There are tools for designers, animators, programmers, artists and others. It gets you going. All AAA studios use Unreal. It is a field for experts. Each module requires a drilling for several months. Right now Unreal Engine 5 is in the development. Early access is available. Its Lumen is AI-based lighting system. It makes reflections visible in mirror or pond in real time

Buy Now, Pay Later (BNPL)

RBI’s working group on digital lending (November, 2021) recommended that BNPL financing should be treated as balance sheet lending.

Fintech lenders are active in BNPL space. It is one of the fastest-growing modes of digital payments, and is considered to be an alternative to credit cards, especially for people in their twenties.

BNPL forms about 2 per cent of total gross merchandise value (GMV), and is likely to grow to 7 per cent of GMV by 2026. The current value of GMV (2021) is $3 billion. It is likely to grow to $35 billion by 2026.

If we want to make BNPL grow further, it is necessary to expand it from online to offline mode. Fintech lenders are now offering physical cards to stimulate BNPL in offline mode. It allows the digital credit line across more touch points. It is particularly suitable for young people with no credit history.

Pay U has launched LazyCard.

There are collaborations between fintechs and traditional banks and NBFCs to operate in this space. These loans may be dispensed on pre-paid instruments, wallets or bank accounts.