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Recently, I was invited to a live debate in one of the Tamil Television channels on a statement reportedly made by CA Sri S.Gurumurthy, a great economic thinker, an eminent columnist and strategy adviser to several leading business houses in the country. He, in his speech at VIT on the Indian budget had opined, among other things, that if only the higher denomination currencies (Rs. 500/- and Rs. 1000/-) are withdrawn from the circulation and replaced by Rs. 100 notes, then half of the black money problem can be solved.

This statement of him was rightly considered as debate-worthy by the channel and had invited me along with our three others – our fraternity’s lawyer friend Mr Vaitheeswaran, a trade unionist and a ‘stock trader’.

At the debate, while agreeing completely with the suggestion of Sri Gurumurthy, I reeled out statistics, which I had gathered from RBI’s website as well as certain other credible sources, that an astonishing amount of Rs. 13 lakh crores was the paper currency that remain in legal tender, though only Rs. 3.8 lakh crores was available within the banking domain. Further, out of the total currency notes that are in circulation, a staggering 89% was higher denomination currencies viz., Rs. 500/- and Rs. 1000/-. My argument was that much of these higher denomination currencies were used for black money transactions – such as in real estate, high level bribery and in the movie industry, not to talk of the ever active hawala markets. Announcing a scheme to compulsorily exchange them with Rs. 100 rupee notes would eventually force those who hoard hordes of such currency notes, obviously ill-gotten and hence not bankable as such, to somehow bring a portion of it in to the system and pay tax on it and to simply destroy the balance paper currency as the implications of tax, interest and penalties and possibility of prosecutions would be hardly worth the while. Also, the culture of hefty bribes would also slowly diminish as the logistics would be made difficult.

Mr Vaitheesawaran pointed out that the whole world has been swiftly moving towards plastic money / netbanking and that moving away from the paper currency system is perhaps the right thought process. He cited the examples of western nations, particularly US, where people seldom carry the highest denomination viz., $ 100 bill. In today’s world, where ATMs are available aplenty and even small business outlets accepting debit / credit cards and e-commerce flourishing, dispensing away with higher denomination currency should not be difficult.

I was flabbergasted when other panelists decried the suggestion calling it as ‘impractical’ and ‘collapser of economy’ and even said that “India is a poor country” and that “everyone cannot afford to have bank accounts” etc. (Funny it may seem, in the same breath, they seemed to suggest that in a ‘poor country like India’, we actually need higher denomination notes of Rs. 500/- and Rs. 1000/- to the extent of nearly Rs. 11 lakh crores, giving space to other denomination currencies like Rs.5, Rs.10, Rs. 20, Rs. 50 and Rs. 100 only to the extent of Rs. 2 lakh crores!).   And, believe me, this was just three days after Prime Minister Sri Narendra Modi, unveiled his ‘financial inclusion’ plan and said that he would see that every Indian family would have a bank account with a bonus of ‘accident insurance’ for Rs. 1 lakh. (It is indeed heartening to note that he has personally e-mailed to the banks across the nation to exhort them to give shape to his plan. That the banks also have begun earnestly by making things such as KYC norms, minimum balance conditions easy is a massive and an amazing step towards financial inclusion of the masses. That inculcation of such large scale banking habit will go a great way to reduce the need for physical cash transactions, which are by nature unsafe, messy, inconvenient etc. is given.)


The debate which could have seen more dimensions, was slightly taken off-tangent by the other panelists and also curtailed by time limit, actually triggered a serious thought process in me. Isn’t it time that an alternate currency mechanism should be thought of? At the global level?

We are talking about the Globe being a single business village, maintain that cross border transactions in goods and services are the norm, and celebrate WTO & GATT etc., as if we connect internationally all the time. Our profession’s leadership is desperately trying to adopt or converge or do whatever nonsense it wants to with the global accounting language called IFRS, without either knowing or understanding the need or the suitability of the same to our nation. (The profession also gloats over the fact that the FM made a mention about adoption of international accounting standard in his budget speech -though, to this day, I am unable to fathom why should at all he include this in the budget speech!). All in the name of unity, integration, uniformity etc.

Forgetting however, the fundamental aspect that needs uniformity is in developing a single common currency which should defy any physical form and that should efface individual nations’ perceived supremacies. To this day, ‘currency’ and its value determine the economic muscle of each nation. And that is why, the United States, despite its dubious distinction of being the most indebted nation (Wikipedia ranks US as No. 1 with $17.6 trillion debts – while India stands at 27th position with $376 billion), rides high in terms of popularity as well as acceptability of its currency. And also the most dominant reserve currency of the world.


Currency, as a medium of exchange, all of us are aware, replaced the barter system centuries ago with each civilization beginning to have its own system of currency mechanism with invariably the underlying asset continuing to be Gold. In fact, in a building on a busy New York street housing the offices of the Federal Reserve (in one of its underground floors about 80 feet below ground level unbelievably well-secured – which the author had the good fortune to visit), many countries of the world are keeping their Gold reserves in physical Gold bars – making this the largest depository of physical gold in the world.

Currencies, world over have seen different evolutions – to start with in all kinds of metals viz., Gold, Silver, Copper, Bronze, Nickel, etc. and finally settled for paper, though metal coins continued to exist for smaller denominations. (The legendary aberration of ‘leather coins’ of Mohamed bin Thuglaq was an insignificant part of the currency’s journey!). The British Sovereign coin weighing 7.98 grams in 22 carat standard was once equivalent to one Pound Sterling and still has an iconic status in India and elsewhere as a bullion. The coins of varying value viz., penny, tuppence, nickel, dime etc. are part of English /American folklore!


Due to inherent differences in the natural, human and other resources between countries of the world, where everyone is not endowed with everything, the need for international trade arose with countries trading their excess productions to the needy countries and importing what they wanted. Here, the fortunes kept fluctuating with the biggest twist in the tale coming with Arabs striking oil in their vast deserts all across the Middle East. The “Camel to Cadillac” success story of the Gulf nations gave birth a new breed, which came to be known as Petrodollars.

In 1971 Richard Nixon was forced to close the gold window taking the U.S. off the gold standard and setting into motion a massive devaluation of the U.S. dollar. In an effort to prop up the value of the dollar Nixon negotiated a deal with Saudi Arabia that in exchange for arms and protection they would denominate all future oil sales in U.S. dollars. Subsequently, the other OPEC countries agreed to similar deals thus ensuring a global demand for U.S. dollars and allowing the U.S. to export some of its inflation. Since these dollars did not circulate within the country they were not part of the normal money supply, economists felt another term was necessary to describe the dollars received by petroleum exporting countries (OPEC) in exchange for oil, so the term petrodollar was coined by Georgetown University economics professor, Ibrahim Oweiss.

Because the United States was the largest consumer of oil in the world, the world oil market had been priced in United States dollars since the end of World War II. International oil prices were based on discounts or premiums relative to that for oil in the Gulf of Mexico. This ‘petrodollar’ concept has seen most of Gulf nations’ currencies pegged to the US dollar, having fixed parity, over several decades. (You will read about a similar ‘pegging’ to Euro later in this article).


The paper currency system was supposed to be for convenience and the Governments that printed are always expected to have adequate underlying security, say as Gold reserves. However, the ratio of paper currency printed to the gold reserves, which should ideally be 1:1 has slowly increased over the years in almost all the countries, many of which had perennially insatiable gluttony for getting more and more currencies printed, mindlessly fuelling inflation. If not to the quantum of reserves, at least the paper currency could have some semblance of relationship with the per capita income, however much illogical it may be. While in the USA, where the per capita income hovers around $53,000 and the currency in circulation is about $1.3 Trillion (roughly translating to INR 78 trillion), in India, the currency in circulation is about INR 13 trillion, with the per capita income of just under INR 90,000/- (equivalent to less than $1500). On a cursory comparison, USA is 6 times wiser than India. And this is one of the reasons, Indian currency is not respected once you cross the shores of India (and perhaps Nepal).

The advent of banking began to reduce the dependence on physical currencies as ‘book transactions’ replaced the physical transactions and amounts but still the Currency in circulation’ kept on swelling. Though demonetization of high value currencies (How many of us know that in India, we had Rs. 10,000/- rupee note and Rs. 5,000/- rupee note, that too at a time, a monthly salary of Rs. 1000/- was considered princely and one who had that kind of salary could buy 20 to 30 grams of gold every month out of his salary income!), took place twice in independent India, the craze for currency is unabated!

However, those who earn legitimately and live honestly have no reason to keep cash in hand beyond a few thousands for possible emergencies. Today, electronic wallet is the rule and cash in hand is an exception. With netbanking, e-transfers, NEFT, RTGS, debit cards etc. and the likes of Paypal, Airtel money etc. where is the need for physical currency?


When the fact that virtual currency is the virtue of the day is given, some parts of the world are quietly exploring the possibility of common currency at least at regional level, if not at global level. Euro was a successful move in that direction. Adopted as a common currency by over 20 nations in the Eurozone from 2002, Euro has emerged as the second largest reserve currency of the world. Apart from the Eurozone, another 20 plus countries and territories have currencies that are pegged to Euro.


It is not that people have not thought of having a single unified currency for the world. An Italian journalist by name Sandro Sassoli in the late nineties came up with an idea of a united future world currency, which he said, is a goal built on faith, common hope, and the unification of cultural and spiritual roots. It was his lofty wish to bring to life the project for a common currency, which has been given the provisional names, “Eurodollar”, “United Money”, then “United Future World Currency”. It would symbolize not only the economic, but also the human, social, political, and spiritual bonds between the Nations of different Continents that hold similar ideals.

This was, of course, mentioned as a matter of cursory information and to bring home a point that such thoughts have been floating around in some parts of the globe. It, at best, is describable as an idea too fantastic to merit a serious discussion!


That brings me to the most intriguing part of my article – the advent of Bitcoins.

First, let me candidly admit that though there have been discussions on this concept for quite some time – which promises an alternate system of ‘international virtual currency’ that completely operates on cryptography – many ‘educated’ people (including finance professionals, economists and CAs) seemed to have NO IDEA whatsoever about this. Out of about 30 people I spoke to, only 2 had some idea about it!

Now, Bitcoin is a crypto currency that is referred to as a “peer-to-peer, electronic payment system”. Unlike the usual form of currency, it is in virtual form and can be used to make payments online as well as in physical stores. With the enormous increase in the usage of internet and transactions through digital mode, creation of a digital currency was inevitable. The basic concept of Bitcoin, which was developed by a group of anonymous geeks under the pseudonym “Satoshi Nakamoto“, involves a party installing an open source software called an electronic wallet on their smartphones or computers. The wallet acts as the repository for the bitcoins which are owned by the party. The bitcoin network is primarily a public ledger where each party has an account (assigned to it when installing an electronic wallet) and all transactions between parties are recorded in the public ledger and can be viewed by anyone. For a transaction to be recorded in the ledger (called a ‘block chain’ ) it first needs to be validated. This is done by volunteers in the bitcoin network called “miners”. Validation primarily involves a miner verifying that the bitcoins transferred from say Party A to Party B are actually owned by Party A and have not previously been transferred by Party A to someone else (called double spending). For this work the miners get a certain transaction fee.

As all transactions are stored in a public ledger and can be viewed by virtually anyone, it becomes difficult to manipulate the data in the network and fraudulently increase the number of Bitcoins in your wallet as there would no corresponding entry to justify it. The issue arises due to the fact that the system does not use the actual names of the parties transacting but assigns pseudonyms. Also bitcoins can be transferred anywhere in the world without restrictions. Due to this anonymity and freedom the bitcoin network is allegedly being used to transfer funds generated from illegal activities.

However, certain questions arise i.e. whether it is a safe form of currency, if bitcoin has been accorded legal recognition and accepted as a digital currency and is regulated or not. Though a few countries like US have started regulating bitcoins, in India, it remains largely unknown, ununderstood and also unregulated. The Reserve Bank of India (“RBI“) appears to be keeping a vigil on this virtual currency that is gaining popularity among internet users, but has not shown inclination of regulating it. However, RBI is currently examining the risks associated with the usage, holding and trading of virtual currencies under the extant legal and regulatory framework of India, including foreign exchange and payment systems laws and regulations.

In its press release on 24th Dec, 2013, RBI has cautioned on the lines below: “As virtual currencies, being in digital form, are stored in digital/electronic media that are called electronic wallets (e-wallets), they are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack etc. Since they are not created by or traded through any authorized central registry or agency, the loss of an e-wallet could result in the permanent loss of the virtual currencies held in them. Payments made through virtual currencies, such as bitcoins, takes place on a peer-to-peer basis without an authorized central agency regulating it. As such, there is no established framework for recourse to customer’s problems/disputes/charge backs, etc. Further, there is no underlying or backing of any asset for virtual currencies. The value of bitcoin seems to be a matter of speculation. Since virtual currencies are volatile in nature, users are exposed to potential losses on account of such volatility. It is reported that virtual currencies are being traded on exchange platforms set up in various jurisdictions whose legal status is also unclear. Hence, the traders of virtual currencies on such platforms are exposed to legal as well as financial risks. There have been several media reports of the usage of virtual currencies, including bitcoins, for illicit and illegal activities in several jurisdictions. The absence of information of counterparties in such peer-to-peer anonymous/pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism.”

Strangely enough, the notification reads like a WHO advisory on Ebola virus. A regulator should regulate not advise. Especially on a serious matter such as this. However, after the press release by the RBI several Bitcoin exchanges in India stopped operations and in some cases the Enforcement Directorate raided the offices of a few Bitcoin exchanges on the grounds of money laundering (attributed to the ability to freely transfer bitcoins to any country).

Additionally there are challenges in taxation aspects (no international taxation expert or TP expert has been able to even hazard any guess as to what can be taxed, how can taxation work etc.) and also due to possibility of hacking. The central server system will offer better focus for hackers and already there are reports of hackings causing enormous losses to users.

The lack of a central agency to control the movement of bitcoins appears to be the predominant reason for the lack of growth of the Bitcoin system.  The irony of the situation is that the Bitcoin network is open source and all the voluntary developers and miners would leave the network at the first sign of an external authority getting involved. In order to lend some kind of legitimacy to Bitcoins, institutions like the RBI have to reach some common ground with the Bitcoin community with regard to regulation of the network (US and Canada have already taken several steps to legalise virtual currencies).     


No write-up of mine can be complete without taking a dig at ICAI! Individual members can be ignorant as our knowledge acquisition is always strictly need based and for us any learning that cannot be monetized is an avoidable activity! But, can the institute be oblivious to such major developments in the field of finance? Should not the ICAI sensitize the members in general and more importantly, include such things in the curriculum? ICAI seems to think that giving out single digit pass percentages in exams is the only way of making the world believe that its education system is world class. Same old amalgamation & merger problems, same old costing & auditing techniques, same old business deductions issues in taxation….Oh, my! How pathetic that we keep our posterity also frozen in terms of knowledge acquisition? When the world is moving so fast, should not the institute do its bit? (pun intended). Especially, when there is even a thriller novel is coming on the Bitcoin now!

If we have come a long way from barter days to banking days and have moved on to SWIFT transfers, swiping cards, OTPs, additional authentications in e-commerce transactions, can Bitcoins be far behind?

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June 2024