The crypto challenge

This refers to ‘Cryptos lack basic features of a currency’ (December 14). Various arguments are put forth for and against floating of cryptos with the government itself planning to introduce a Bill on cryptocurrency to regulate it. The downside risk of cryptos is that they are not backed by any asset. Also, they are expected to exist along with the country’s local paper currency. Cryptos can be interpreted as a demat version of physical currency.

Can both the versions co-exist side by side? If so how both of them will be linked in terms of exchange value? As such it is not clear how macroeconomic indicators like inflation, interest rates, GDP, exchange rates, etc., will be measured in the changed scenario? Also, since cryptos are speculative in nature with the sole intention to trade for profit, it is not clear how government could be part of such a system? At a time when the government is planning to table a Bill to regulate this industry in the form of floating a central bank digital currency (CBDC), there could be lots of regulatory challenges in terms of framing guidelines to protect investors from downside risk if it is made part of the banking system.

Srinivasan Velamur


Expanding IBC

This has reference to ‘A cross-border leap for insolvency reforms’ (December 14). Keeping in view the difficulties faced in some cases in the past where cross-border assets were involved, the amendment to IBC has become essential. Incidental to that, expertise for handling the cases across geographies is also to be developed.

In the case of international insolvency, there are likely to be two proceedings — where the debtor has the centre of main interest, and other non-main proceedings where the debtor has a commercial establishment. The success of cross-border insolvency proceedings depends on the support received from courts in other countries and the capability of resolution professionals to handle such matters. The law may need more tweaks depending upon the learnings.

M Raghuraman


Deposit insurance

India’s cooperative banks have become synonymous with financial irregularities. The government is hopeful that deposit insurance reforms will spur account-holders to trust the banking system. The enactment of the Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, 2021, which ensures that depositors get up to ₹5 lakh within 90 days of the RBI imposing a moratorium on a bank, is a major step. Earlier, account holders had to wait for years for the payments. It was only last year that the government had raised the deposit insurance cover to ₹5 lakh from ₹1 lakh — the increase had been effected after a gap of 27 years. However, the onus is on the RBI to generate awareness among depositors and keep tabs on banks involved in shady practices.

Tighter regulation is the key to minimising the possibility of fraud in the 1,500-odd urban cooperative banks across the country. Once the depositors are confident that their money won’t be siphoned off, they can contribute more towards improving the financial health of the banks concerned. This will, in turn, reduce the desperate dependence on the ‘last resort’ of payment of deposit insurance.

N Sadhasiva Reddy


Algo trading

Apropos ‘A place for algo’ (December 14), indeed algo trading is a blessing to the stock market since the automated and pre-programmed computer strategies are useful for quick execution of the trades.

Retail stock trade through this new mode is flourishing and covers 50 per cent of the daily trading volume of the market.

Investors use third party algo programs for their retail stock business. Such unapproved algos can cause potential loss to the investors. SEBI now wants such third party algo strategies to be approved with a unique ID.

When algo strategies are submitted for approval, it may require revealing the trade formula of the investors. But approval on algos, though detrimental to secrecy of the investment formula, is a must.

NR Nagarajan