In India crypto won't be the first case of privately issued currencies

After several years of deliberation, the government is going to table a bill on cryptocurrencies in the forthcoming winter session of Parliament. Whatever is acheives or doesn’t, we need to answer some deeper underlying questions. 

Thus, how many currencies should a country have? Should the issuance of currency be a monopoly of the sovereign? If yes, why? If not, why not? Does a single currency reduce economic costs? 

These are only some of the questions that the world is grappling with with the advent of privately issued cryptocurrencies. Since no one knows exactly what effect these privately issued currencies will have, the government is planning to pass a law on them in the forthcoming winter session of Parliament. 

Thus the “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021" to be tabled in Parliament during the Winter Session seeks "to create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India. The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses."

Finally it wants to "create a facilitative framework for creation of the official digital currency to be issued by the RBI".

While we wait to see what happens, it is useful to be reminded of the time when the princely states — as they came to be called by India’s British rulers — used to issue their own currencies. As far as the East India Company was concerned these were the equivalent of privately issued currencies.

By 1820, the East India Company had established control over even those parts of India that it didn’t rule directly. But it quickly found that it was severely constrained by the diverse coinages in existence. It was spending too much on exchange. 

This, by the way, is exactly what the Europeans were complaining of throughout the last quarter of the 20th century. That’s how and why the Euro was born. 

In 1835 the Company Bahadur, like the EU would in 1994, decided to unify the currency system and introduced a new coin, the silver rupee. This was made the standard currency in Madras in 1818 and in Bombay in 1823. In 1835, via an Act, it became the standard currency throughout British India, replacing gold. 

The face value equaled the intrinsic value. The minting was free. The Act allowed the minting of gold mohurs of Rs. 5, 10, 15 or 30. A proclamation in 1841 allowed the mohurs to be paid to any public treasury as payment for public dues. 

But the Indians, as Keynes discovered in 1912, didn’t want to use the British currency as a medium of exchange. They used it as a store of value. 

But that is as yet to come. Much earlier, when gold was discovered in California and Australia during 1848-1851 the government stopped accepting mohurs as payment for public dues.

The British had collateral motives, the main one being protection of their exports via a manipulated exchange rate. The Chinese and Japanese were thus not the pioneers in the game. 

I want to ask a heretical question now: should all or some of our 28 states issue their own currencies?
 

The case against this is the old one of exchange loss. The case for it might be better fiscal discipline at the state level. 

International payments would be a problem, too. But again as the British managed to do exchange rate manipulation would be hard to catch. 

One last question: If a currency is only as good as the faith people have in it, how much faith will be left in them if central banks go on printing notes? Would parallel currencies not become a better store of value then?